At the heart of rental property investing is a simple question: after collecting rent and paying all expenses, will this property put money in your pocket? Cash flow analysis answers this question by projecting income and expenses to determine whether an investment will generate positive returns.
Calculating Cash Flow
Start with gross rental income—what the property can rent for monthly. Research comparable rentals in the area. Be conservative in your estimates.
Subtract a vacancy allowance (typically 5-8%) for time between tenants. Then subtract operating expenses: property taxes, insurance, maintenance (budget 5-10% of rent), property management (8-10% if hiring), and utilities you pay.
What remains is Net Operating Income (NOI). Subtract your mortgage payment to get monthly cash flow—the actual money in your pocket.
Cash-on-cash return measures annual cash flow divided by total cash invested. If you invest $50,000 and generate $4,000 annually, your cash-on-cash return is 8%. Most investors target 8-12%.
Use our rental property calculator to run the numbers on any property.