Rental Property Calculator
Monthly cash flow = (effective rent − operating expenses − annual mortgage payments) ÷ 12, and cash-on-cash return = annual cash flow ÷ total cash invested, where total cash invested includes the down payment, closing costs, rehab and the carrying costs you pay before the first rent check.
Last updated: · by MakeLease Editorial Team
| Down payment | $62,500 |
| Closing costs | $7,500 |
| Rehab | $15,000 |
| Holding costs | $2,400 |
| Total | $87,400 |
| Gross income | $27,600 |
| Vacancy | −$1,380 |
| Operating expenses | −$9,168 |
| Net operating income | $17,052 |
| Mortgage payments | −$14,969 |
| Annual cash flow | $2,083 |
| 1% rule: monthly rent ÷ price | 0.92% |
| 50% rule: vacancy + expenses ÷ gross income | 38.2% |
| Debt coverage (NOI ÷ debt service) | 1.14x |
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How it's calculated
NOI = (gross rent + other income − vacancy) − operating expenses
Monthly cash flow = (NOI − annual mortgage payments) ÷ 12
Total cash invested = down payment + closing costs + rehab + (holding months × monthly carrying costs)
Cash-on-cash return = annual cash flow ÷ total cash invested × 100
Cap rate = NOI ÷ purchase price × 100
- Gross income is twelve months of scheduled rent plus other income such as parking or laundry. Vacancy is the share you expect to lose to empty months and unpaid rent.
- Operating expenses are the costs of running the property: taxes, insurance, HOA dues, management, routine maintenance and a capital expenditure (CapEx) reserve for big replacements. Mortgage principal and interest are not operating expenses, and neither are depreciation or your income tax.
- Mortgage payments are principal and interest on the loan (purchase price minus down payment), paid monthly over the term.
- Holding costs are what you pay between closing and the first rent check: loan payments, taxes, insurance, utilities and lawn care on an empty unit. This calculator multiplies the months by the monthly amount and adds the result to total cash invested, next to the rehab budget.
- Total cash invested is every dollar out of your pocket to get the unit rented. It does not include the loan, because the lender put that money in, not you.
Worked example
Say you buy a house for $250,000 with 25% down, pay $7,500 in closing costs and spend $15,000 on a rehab. It takes 2 months to finish the work and sign a tenant, and the empty house costs you $1,200 a month to carry.
- Holding costs: 2 × $1,200 = $2,400.
- Total cash invested: $62,500 down + $7,500 closing + $15,000 rehab + $2,400 holding = $87,400.
- Income: $2,300 × 12 = $27,600 a year, less 5% vacancy ($1,380) = $26,220.
- Operating expenses: $3,000 taxes + $1,200 insurance, plus maintenance, management and CapEx at 5%, 8% and 5% of rent = $9,168. NOI is $26,220 − $9,168 = $17,052.
- The $187,500 loan at 7.0% over 30 years costs $1,247.44 a month, or $14,969 a year.
- Annual cash flow: $17,052 − $14,969 = $2,083, or $174 a month.
- Cash-on-cash: $2,083 ÷ $87,400 = 2.38%. Cap rate: $17,052 ÷ $250,000 = 6.82%.
The deal is cash-flow positive after reserves, but thin. The break-even ratio is 87.5%, so a few extra vacant months or one large repair beyond the reserves would wipe out the year. Notice how much the rehab and holding costs matter: without them, cash invested would be $70,000 and cash-on-cash would look like 2.98%.
What's good monthly cash flow on a rental?
Good cash flow is cash flow that stays positive after you have set aside money for vacancy, repairs and capital replacements. A property that looks positive before reserves can lose money the year a roof or furnace comes due. Judge the number only after those reserves are in the expense line, as they are here.
Beyond that, there is no single right number. Investors weigh cash flow against what else they get from the property: loan paydown, possible appreciation and tax benefits. A buyer in a high-price, low-yield market may accept thin cash flow in exchange for expected appreciation. A buyer who needs income will not. What matters is that you choose the trade-off on purpose and leave a margin. A low break-even ratio means more room for a bad year.
The 1% rule and the 50% rule
Two rules of thumb show up in almost every rental forum. The 1% rule says monthly rent should be at least 1% of the purchase price. The 50% rule says vacancy and operating expenses will eat about half of gross rent over time, not counting the mortgage. Both are quick screens for deciding which listings deserve a full analysis. Neither is a law of the market, and neither replaces the line-by-line numbers above.
Their limits are real. The 1% rule ignores taxes, insurance and interest rates, and many sound properties in expensive areas will never meet it. The 50% rule can be far off for a new building with low repair costs or for an older one with high taxes. If the 50% rule check above shows a share well under 50%, ask whether your expense estimates are complete before trusting the cash flow.
If you don't have a rehab number yet, build one line by line in the rehab cost estimator. Once the unit is rented, track actual income and expenses against these estimates; see rental property accounting basics.
Common mistakes
- Leaving holding costs out of cash invested. Two or three months of loan payments, taxes and utilities on an empty unit is real money and lowers your cash-on-cash return.
- Setting maintenance and CapEx to zero because the house was just renovated. A rehab delays big repairs; it does not cancel them.
- Counting the mortgage as an operating expense. That makes NOI and cap rate look worse and double-counts the loan when you compute cash flow.
- Assuming zero vacancy. Even a long-term tenant moves out eventually, and turnover takes weeks of cleaning, painting and showings.
- Using the asking rent, not the market rent. Check what similar units actually rented for, not what landlords are listing them at.
- Forgetting management because you plan to self-manage. Your time has a cost, and a lender or future buyer will price management in anyway.
Frequently asked questions
- Why do holding costs change my cash-on-cash return?
- Holding costs are real cash you spend before the property earns anything: taxes, insurance, utilities and loan payments during the rehab and tenant search. They add to total cash invested, the denominator of cash-on-cash return, so the same yearly cash flow produces a lower return. Leaving them out makes a slow, expensive turnover look as good as a rent-ready purchase.
- Should maintenance and capital expenditures be included if nothing is broken?
- Yes. Repairs and big replacements such as roofs, water heaters and HVAC are irregular but certain. Setting aside a percentage of rent every month turns a lumpy cost into a steady one. If you leave those reserves out, a property can show positive cash flow on paper and still cost you money over the years you own it.
- Is the cap rate here based on the purchase price or the after-repair value?
- This calculator divides NOI by the purchase price you enter. If you want cap rate on the value after rehab, divide the NOI shown by your after-repair value, or use the cap rate calculator with that value.
- What does the break-even ratio tell me?
- The break-even ratio is operating expenses plus mortgage payments, divided by gross income. It shows how much of the rent is already spoken for before you earn anything. If the ratio is 85%, for example, vacancy and unplanned costs combined can take only about 15% of gross income before cash flow turns negative.
- Does monthly cash flow include taxes on rental income?
- No. The cash flow shown is before income taxes. Depreciation, mortgage interest and other deductions can change what you owe, so talk to a tax professional about your after-tax result.
Further reading
Bought the property? Put a lease in place.
The numbers above assume a tenant paying rent on time. MakeLease walks you through a residential lease step by step. Creating and e-signing a lease is free, with no card. You need a free account to save it and send it for signature.
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