How to calculate cash flow on a rental property
Cash flow is the money left in your pocket after the property has paid every one of its own bills for the month — including the mortgage. The formula for a single year is simple: effective gross income − operating expenses − mortgage payment. But the reason a cash flow calculator is worth more than a one-year snapshot is that cash flow doesn't stand still. It ramps.
Why cash flow grows every year
Here's the mechanism most new investors miss. Your rent tends to rise a few percent a year. Your operating expenses rise too. But if you took a fixed-rate mortgage, your biggest single cost — the loan payment — never moves. So every year, a growing rent is measured against a frozen mortgage, and the gap between them widens. A property that's thin or even slightly negative in year one can be a genuine cash machine by year eight or ten. A single-year calculator is blind to this; the projection above is built entirely around it.
What "cash flow snapshot" vs. "cash flow projection" means for you
If you just want a fast go/no-go read on a listing — cap rate, cash-on-cash, and a Buy/Consider/Pass verdict for year one — that's a screening job, and our Rental ROI Calculator does it in about 90 seconds. This tool answers the different, longer question: across the whole time I own it, what does this property actually pay me — and when does it pay me back? That's why it adds rent growth, expense growth, and a hold period, then lays out every year.
The three expenses that make or break the projection
A property looks great when you only count taxes, insurance, and the mortgage. It looks real when you also budget the three line items new investors routinely skip:
- Vacancy — no unit is rented 100% of the time. Budget 5–8% of rent so one bad month doesn't erase the year.
- Maintenance & repairs — the leaky faucet, the dead appliance, the 11pm call. Typically 5–10% of rent.
- CapEx reserves — the roof, the HVAC, the water heater. Rare, but thousands each. Setting aside ~5% of rent monthly keeps them from becoming emergencies.
The calculator includes all three by default, which is why its numbers are usually lower — and far more honest — than a back-of-the-napkin estimate.
Cumulative cash flow and the payback year
The single most useful number a projection gives you isn't any one year's cash flow — it's the cumulative total, and the year it crosses the cash you put in. Put $65,000 down and close; the projection adds up every year's cash flow until the running total repays that $65,000. That's your cash-flow payback — and it happens before counting a dollar of appreciation or loan paydown, which are both real returns stacked on top. The highlighted row in the table above marks that year.
Cash flow per door
Once you're looking at duplexes and small multifamily, total cash flow can hide a weak deal. Experienced investors track cash flow per unit — or "per door." A common target is $100–$200 per door per month after all expenses and reserves, though the right number depends on your market and how much appreciation and paydown you're also getting.
Is this a good cash-flowing deal?
There's no universal cutoff, but a useful frame: year-one cash flow should be reliably positive after real reserves; your DSCR (net operating income ÷ mortgage) should sit comfortably above 1.2; the per-door number should clear your personal threshold; and the projection should show a payback year you're comfortable with. If a deal only cash-flows when you delete the vacancy and CapEx lines, it doesn't really cash-flow — it just hasn't sent you the bill yet.
Frequently asked
Does cash flow include principal paydown or appreciation? No — those are real returns, but they aren't cash in your pocket this month, so this tool keeps them out. It's the most conservative, spendable number to underwrite to.
What rent-growth number should I use? Long-run U.S. rent growth has historically averaged low-single-digits, so 2–3% is a common, defensible assumption. Set expense growth in the same range. When in doubt, use a lower rent-growth and a higher expense-growth figure and see if the deal still works — if it does under pessimistic growth, you have margin.
Why is my early cash flow negative but later years positive? That's the ramp doing its job: rising rent against a fixed mortgage. Whether an early-negative deal is acceptable depends on how deep the hole is, how fast it climbs, and whether you can fund the gap in the meantime. The table shows you exactly how long you'd be feeding it.