Rental Cash Flow Calculator

The rental property formula

Rental property cash flow is net operating income minus the mortgage payment. NOI is the vacancy-adjusted rent minus operating expenses. Cap rate is NOI divided by price, cash-on-cash is year one cash flow divided by the cash you invested, and IRR is the annualized return across the whole hold, sale included.

Start with NOI, the income foundation, because every other number on this page is built on it. Add the scheduled rent across every unit to any other income the property collects, subtract the share lost to vacancy, then subtract operating expenses: property tax, insurance, HOA dues, maintenance and management. What is left is what the building earns before any loan exists. On the example deal that is $19,320 against $30,000 of gross rent.

Cash flow is the number a landlord actually lives on: NOI minus the annual mortgage payment. Here it is $19,320 minus $14,222 of debt service, so $5,098 a year, or $425 a month. When that line is negative the owner is funding the property from a paycheck, which is the most common reason a first rental disappoints.

The ratios put that dollar figure in context. Cap rate, the leverage-free yield, is NOI divided by price: $19,320 divided by $250,000, or 7.73%. Cash-on-cash return is year one cash flow divided by the cash that went in: $5,098 divided by $77,500, or 6.58%, and it moves every time the financing changes.

Two more complete the picture. DSCR is NOI divided by annual debt service, 1.36 here, and it is the number a lender underwrites before it writes the loan. IRR is the rate that makes the present value of every cash flow and the sale price net to what you invested, 14.32% on this example. Cap rate judges the building, cash-on-cash judges your first year, and IRR judges the entire hold.

Why a rental property needs all five is that they fail differently. A building can earn a fair yield on its price and still hand its owner nothing after an expensive loan. A deal can pay cash every month and still return less than a savings account once the down payment is counted. Reading one number alone hides whichever weakness the other four would show.

How to calculate cash flow for a rental property

Cash flow = (rent × 12 × (1 − vacancy)) + other income − operating expenses − annual mortgage payments. In the example, $30,000 of gross rent at 5% vacancy is $28,500, operating expenses are $9,180, NOI is $19,320, the mortgage is $14,222, and cash flow is $5,098 a year, or $425 a month.

Step one, gross income. Add the monthly rent across every unit and any other income the property collects, then multiply by twelve. $2,500 a month is $30,000 a year, before anything is subtracted.

Step two, vacancy. Multiply gross income by the vacancy rate to get effective income. Five percent of $30,000 is a $1,500 allowance, which leaves $28,500 of rent you can count on across a full year even though the unit is not always occupied.

Step three, operating expenses. Add property tax ($3,000), insurance ($1,400), HOA ($0), maintenance ($2,500) and other expenses ($0) for $6,900 of fixed costs, then add management at 8% of collected rent, $2,280. Total operating expenses are $9,180, so NOI is $28,500 minus $9,180, or $19,320.

Step four, debt service. A $187,500 loan at 6.5% over 30 years costs $1,185 a month, or $14,222 a year, the payment the mortgage calculator builds in full, escrow and PMI included. That payment is fixed while rent and expenses move, which is what makes the same property look better the longer it is held.

Step five, the subtraction. NOI minus debt service is $5,098 a year, $425 a month. Divide that by the $77,500 of cash in the deal and the cash-on-cash return is 6.58%. Every one of those five steps is live in the calculator above; change the rent or the rate and the whole chain recomputes.

A negative result is not a math error. It means the property is being funded from outside, and the honest next question is how much rent growth or price discount would close the gap. Raise rent until the number crosses zero and you have found the rent the deal needs, not the rent the market is offering.

Worked example: a typical 30-year hold

Hold the example deal for 30 years and the sale does the heavy lifting. At 3% appreciation a $250,000 house sells for $606,816; 7% selling costs take $42,477; the loan is fully paid off, so net proceeds are $564,339. Add $492,511 of accumulated cash flow against $77,500 invested and total profit is $979,350, a 14.14% IRR.

The income side compounds the whole way. NOI grows 3% a year from $19,320 in year one to $45,529 in year 30, because rent grows at the same rate and the mortgage never moves. Annual cash flow climbs from $5,098 to $31,307 over the same period, and the 30-year total is $492,511.

The mortgage is the quiet part of the trade. The $14,222 payment is identical in year 30 and year 1 while rent nearly doubles, so cash flow grows without a single change in how the property is run. By year 30 the loan balance is zero, which is why net sale proceeds land at $564,339 instead of closer to $450,000.

Read the three numbers together and the shape of a long hold appears: $564,339 at the sale, $492,511 of rent left over after everything, and $77,500 that started it all. The return is 14.14% a year, and roughly a third of the profit came from the sale while the rest was the property paying its own way and retiring its own debt.

One honest caveat. Holding 30 years means 30 years of vacancies, repairs, tenants and insurance, and this model assumes all of it stays near plan. The calculator grades the same deal a B on a 30-year hold rather than an A, because the horizon itself carries more risk than any single line on the sheet does.

The shape of the chart says the same thing. Cumulative cash flow climbs steadily while the equity line climbs faster, because it adds principal paydown and appreciation to the same base. By year 30 the two lines tell one story: the property paid its owner every year and grew into an asset worth more than twice what it cost.

Nothing in the 30-year run requires the owner to do anything beyond maintain the property and keep it rented, which is the whole argument for a long hold. The work is front-loaded into the purchase and the first few years; the compounding is not.

Worked example 2: all-cash vs financed on the same property

Buy the same $250,000 property with no loan and the cash flow triples: $1,610 a month instead of $425, because there is no $14,222 mortgage. Total profit over 10 years also rises, to $268,943 from $155,272. But the return falls, from 14.32% to 9.34%, because $265,000 of your money did the work instead of $77,500.

The all-cash column: $265,000 in for price, closing and repairs. NOI of $19,320 is all cash flow, so $221,482 accumulates across 10 years, the sale nets $312,461 with no loan to pay off, and the profit is $268,943 on $265,000. That is a 101% total return and a 9.34% IRR.

The financed column: $77,500 in. The same $221,482 of NOI splits into $142,220 of mortgage payments and $79,267 of cash flow, and the sale nets $153,505 because $158,955 of loan is paid off. Profit is $155,272 on $77,500. That is a 200% total return and a 14.32% IRR.

Both deals own the same building and collect the same rent, so leverage did two things at once. It cut the dollars of profit by $113,671, because the bank took its share of the income every month. It also cut the cash required by $187,500, which is why the smaller profit still earns the larger return.

The trade is risk, not arithmetic. The all-cash owner can survive a long vacancy without asking anyone for help, and the 9.34% return arrives without a payment due on the first of the month. The leveraged owner gets a materially better return and owes $1,185 whether the unit is rented or not. Set the down payment to 100% and then back to 25% to watch both columns move.

Worked example 3: when a bad deal turns good with rent growth

A property that cash flows negative on day one can still win, but only if rent grows. Take the example deal with rent cut to $1,800: NOI is $11,978, the mortgage is $14,222, cash flow is minus $187 a month, and DSCR is 0.84, below the 1.0 floor where the rent cannot carry the loan.

Held 20 years with rent growing 3% a year, that deal returns a 7.82% IRR and $275,482 of total profit. Annual cash flow is negative for six straight years, turns positive in year seven, and the accumulated cash flow across the whole hold is $37,433. The bad first year is real, but it is not the whole story.

Raise rent growth to 5% and the same rent, price and mortgage return a 10.38% IRR and $392,445 of profit. Cash flow turns positive in year four instead of year seven, and the 20-year total of cash flow more than quadruples, to $154,396. Nothing about the property changed except how fast the rent moved.

Rent growth is the lever with the longest reach on a rental property. Compare the example deal held 20 years at three growth rates: flat rent returns a 9.94% IRR with $54,564 of cash flow, 3% returns 14.47% with $234,705, and 5% returns 17.57% with $397,153. Same building, same loan, three different outcomes.

The catch is that rent growth is the input you control least, since it depends on the market, the tenants and the local supply of rentals. Underwrite the deal so it survives a flat market, then treat whatever rent growth arrives as the upside it is rather than a number to borrow against.

That is why a rent-growth assumption deserves a range rather than a single number. Run the deal at 0%, 3% and 5% and the IRR spans 9.94% to 17.57%. If the plan only works at the top of that range, it is not a rental, it is a forecast.

Case study: 20-year projection with actual numbers

Take the example deal and hold it 20 years instead of 10. Rent grows 3% a year, expenses grow 3% a year, the mortgage stays at $1,185 a month, and the property sells into 3% appreciation and 7% selling costs. Total profit is $472,753 on $77,500 invested, a 14.47% IRR.

The sale: $250,000 of purchase price becomes $451,528 of value after 20 years at 3% a year. Selling costs are $31,607, the remaining loan is $104,372, and net proceeds are $315,548.

The hold: NOI climbs from $19,320 in year one to $33,878 in year 20. Annual cash flow climbs from $5,098 to $19,656, because the payment is fixed while the income is not. Twenty years of cash flow adds up to $234,705.

The balance: the loan stood at $158,955 after 10 years and $104,372 after 20, so the tenant retired another $54,583 of principal in the second decade alone. Equity at the sale is $347,155, the gap between the $451,528 value and the $104,372 still owed.

Here is the part the headline number hides. More than half of the $472,753 profit is appreciation, and appreciation is the one input nobody controls. Cash flow contributed $234,705 and principal paydown most of the rest, and those two are what the property does on its own. Read the profit figure as a forecast, not a lock, and stress the rent and expense lines before relying on it.

Two numbers make the case study worth repeating. The first is cash flow: $5,098 in year one against $19,656 in year 20, with nothing changed except the passage of time. The second is the loan balance, which falls from $187,500 at closing to $104,372 after 20 years without the owner adding a dollar. Together they are why a rental held long enough can outrun almost any other use of the same down payment.

The downside is equally visible in the model. Sell in year three and the same property returns $12,828 and a 5.59% IRR, because the deal has not had time to clear the costs of getting in and out. The 20-year projection is not a promise about the market; it is what the arithmetic does when the assumptions hold.

IRR: why it beats cap rate and cash-on-cash for long holds

Cap rate ignores the loan and the sale, cash-on-cash looks at one year, and IRR counts everything: every year of cash flow plus the sale price, discounted back into a single annual rate. On the example deal the cap rate is 7.73%, cash-on-cash is 6.58%, and the IRR is 14.32%.

The gap between them is the point. Cap rate is a property metric, so it is silent about a 25% down payment, a 6.5% loan and a sale in year 10. Cash-on-cash is a one-year metric, so it says nothing about the mortgage being paid down or the property appreciating. Those two forces are exactly what a long hold is buying, and IRR is the only one of the three that counts them.

Watch the same three numbers on the all-cash version of the deal. Cap rate stays at 7.73%, cash-on-cash rises to 7.29%, and IRR falls to 9.34%. The cap rate did not move because the building did not change; the other two moved because the financing did. That is the cleanest way to see which metric answers which question.

IRR has its own trap, and it is worth naming. It assumes every dollar of cash flow is reinvested at the same rate, which rarely happens in practice, and it says nothing about the dollars at risk. A 20% IRR on a $40,000 deal and a 12% IRR on a $400,000 deal are not interchangeable. Use IRR to compare holds, then check return on your committed cash and the cash in the deal before committing.

For a short hold the ranking can reverse entirely. The example deal sold after three years shows a 5.59% IRR and $12,828 of profit, because 7% selling costs and a barely-moved loan balance swallow most of three years of appreciation. The same property over ten years returns 14.32%. IRR is the number that makes the hold period visible.

Cap rate vs cash-on-cash vs IRR

The three metrics answer three different questions. Cap rate asks what the building earns per dollar of price. Cash-on-cash asks what your invested cash returns this year. IRR asks what the whole hold returns per year once the sale is counted. All three are correct, and each one is blind to something the others see.

Read them in order and the deal story writes itself. A 7.73% cap rate says the price is fair for the income the building produces. A 6.58% cash-on-cash return says the first year pays a modest return on the cash involved. A 14.32% IRR says the whole ten-year hold, sale and principal paydown included, is a strong investment. The third number is higher than the first two because it credits the property for things that only appear over time.

The same three metrics rank the weak deal differently. Rent cut to $1,800 gives a 4.79% cap rate, a negative 2.89% cash-on-cash return, and a 7.82% IRR over twenty years. The cap rate still looks close to acceptable while the cash return is negative and the IRR is barely above a bond, which is exactly the trap of judging a leveraged rental on its cap rate alone.

Use each metric for the decision it was built for. Cap rate screens properties against each other before financing enters the picture. Cash-on-cash answers whether the cash you are about to commit earns enough this year. IRR answers whether the whole plan, exit included, is worth ten or twenty years of ownership. None of the three replaces the other two.

A quick way to keep them straight: cap rate is the property, cash-on-cash is the financing, and IRR is the timeline. Change the loan and only cash-on-cash and IRR move. Change the price and all three move. Change the hold period and only IRR moves. Watch which cards respond when you type, and the metric you should be reading becomes obvious.

One property, three verdicts: the unleveraged yield, the first-year return on your cash, and the annualized return across the whole hold.

The 50% rule, the 1% rule and the 70% rule

The rules are fast screens, not verdicts. The 1% rule asks whether rent is at least 1% of price, the 50% rule assumes expenses eat half the rent, and the 70% rule caps a project at 70% of its finished value. The example deal passes the 1% rule at exactly 1.0%.

The 1% rule: monthly rent divided by purchase price. $2,500 divided by $250,000 is 1.0%, so the example deal passes exactly at the line. At $2,300 a month it reads 0.92% and fails, and the same property returns a 12.02% IRR instead of 14.32%, a $24,046 difference in profit that the screen does catch.

The 2% rule: the same test with a higher bar. Rent would need to be $5,000 a month on a $250,000 house to hit 2%. Property like that exists mostly in inexpensive markets with weaker appreciation and higher operating costs, which is why the rule is a starting point rather than a standard. Most US rentals fail it today, including this one.

The 50% rule: assume operating expenses, including vacancy and management, run about half of gross rent, leaving the other half to cover the mortgage and cash flow. Half of $30,000 is $15,000. This deal costs $10,680 to run, or 35.6% of gross rent, so it clears the rule with room, and NOI is $19,320, or 64.4% of gross rent.

The 70% rule belongs to a different job. It says pay no more than 70% of the after-repair value on a project, all in, and it is the entry screen for a flip or a BRRRR rather than for a stabilized rental. On a renovation you plan to refinance, that test decides whether your capital comes back; on a rental you plan to hold, the 50% rule and the DSCR are the screens that matter.

Landlord responsibilities: the four jobs

A rental is a business with four jobs: tenant management, maintenance and repairs, admin and compliance, and financials. The building does not care who does them. Every hour you keep is an expense you avoid, and a management fee, a vacancy or a repair bill is what the other choice costs.

Tenant management. Marketing the unit, screening applicants, signing the lease, collecting rent, chasing late payments, handling renewals and enforcing the rules. It is the job with the most people in it and the one that decides whether a year runs smoothly. A manager typically charges 8% to 10% of collected rent, which on $30,000 of rent is $2,400 to $3,000 a year.

Collecting rent is the front half of tenant management, and the two awkward payments are always the first and the last. The prorated rent calculator settles the partial month on a move-in or a move-out, which is the rent this projection rounds to a whole month and the figure a landlord and a tenant most often disagree about.

Maintenance and repairs. Turning the unit between tenants, handling service calls, and funding the big-ticket items on their own schedule: roof, HVAC, water heater, flooring. A common reserve is 5% to 10% of gross rent, or roughly one month of rent per unit per year. On this deal the maintenance line is $2,500, under 10% of gross rent and still the line most often set too low.

Admin and compliance. Licenses and registrations, local rental ordinances, lead paint and safety disclosures, security deposits held in the right account, and the paper trail that protects both sides if a dispute reaches court. It is unglamorous work, and it is where an uninsured mistake gets expensive fast.

Financials. Tracking income and expenses, setting money aside for taxes and reserves, keeping receipts for depreciation, and knowing the difference between what a property earns and what it pays you. The calculator on this page is the front half of that job. The back half is a separate account, because the money sitting in checking is not all yours.

Every one of the four jobs has a market price, and that price is why a mediocre property becomes a poor one. If management, repairs and vacancy together cost more than the $5,098 of annual cash flow, the property is paying you nothing for the work. Price the jobs honestly, whether you do them or hire them, and the cash flow figure stops being optimistic.

What kills rental returns

Three mistakes kill more rental property returns than bad markets do: underestimating operating expenses, overpaying at purchase, and selling too soon. Each is a number you set before you own the property, and each is cheaper to fix on paper than in the deal.

Underestimated expenses. Suppose maintenance is really $4,500 a year, not $2,500, because the roof is 15 years old and the HVAC is older. NOI falls to $17,320, cash flow drops from $425 to $258 a month, and DSCR slips from 1.36 to 1.22, under the 1.25 line most lenders want. The IRR falls to 12.13%. Nothing went wrong with the property; one input was wrong, and it moved every return on the page.

Overpaying at purchase. Pay $290,000 instead of $250,000 for the same $2,500 of monthly rent and the cap rate drops to 6.66%, cash flow to $235 a month, and DSCR to 1.17. The IRR falls to 11.76%. Price is the one input a seller controls and you can always walk away from, which is why it deserves more skepticism than any projection on this page.

Selling too soon. The example deal sold in year three instead of year ten returns $12,828 of profit instead of $155,272, and an IRR of 5.59% instead of 14.32%. Seven percent of selling costs and a loan balance that has barely moved do the damage, because three years is not enough time for appreciation and paydown to cover the cost of getting in and out.

The three make the same point from different directions. A rental is a long-dated asset, and its return is set by three decisions made up front: what you pay, what you assume it costs to run, and how long you hold. Get those three right and the property does the rest. Get any one wrong and no amount of good management repairs it.

How to source and finance a rental property

Rentals come from three sources: wholesalers who sell contracts, the MLS where listings already carry a price, and direct mail or door knocking that finds owners before they list. Financing comes from three more: hard money for speed, conventional loans for the long hold, and all cash for the cleanest deal.

Wholesalers bring properties that never hit the market, at a markup called an assignment fee. Ask what the contract price is and what the fee is, because the fee is paid out of your equity. The MLS is the most competitive source with the deepest inventory; on a rental you are looking for the property that cash flows at market rent, not the listing with the best curb appeal.

Direct mail works on repetition rather than clever copy. Owners of paid-off rentals and tired landlords are the usual targets, and the campaign needs months of touches before it produces a real lead. It is the slowest source and the one where the discount is largest, because you are buying before the market sets a price.

Hard money funds fast and accepts property a bank will not touch, at a high rate and a short term. It is built for projects rather than a 10-year hold, and when the exit is a refinance it is the right bridge. Conventional loans are the opposite trade: slower to close, stricter about the property, and cheap for decades, which is what a long rental hold wants.

All cash removes the rate, the points and the DSCR test at once, and it wins a competitive offer. It also concentrates your net worth in one illiquid asset, and the return falls to the cap rate plus appreciation, 9.34% in the example. The middle path, 20% to 30% down on a conventional loan, is where most landlords land, and the calculator above prices all three.

Whichever route you take, run the property through the numbers before you run it past a lender. Cash flow, DSCR and IRR look the same whether the money comes from a bank, a fund or your own account, and they are the reason to buy or the reason to keep looking. When the plan is to sell instead of hold, when the exit is a sale instead is the sheet to run.

Who uses a rental cash flow calculator

Six kinds of people run these numbers, and they read the same six cards for different reasons. What they share is the moment before money moves, when the deal is still free to walk away from and the answer is still cheap to find.

First-time landlords. Modeling whether a property will cash flow before committing capital. They check Year 1 Cash Flow and DSCR first, because a first rental that needs a monthly subsidy is a decision to fund a hobby, and coverage above 1.25 is the bar to clear before signing anything.

Experienced investors. Screening 10 to 20 deals a week and expecting to pursue two. They enter price, rent, expenses and financing, read the IRR and cash flow, and move on. The calculator is a filter rather than an underwriting model, and only the deals that clear it earn an inspection.

BRRRR investors. Not holding for the long term at all, because the exit is a refinance rather than a sale. They run the refinance math on the BRRRR sheet and use this page to see the post-refi cash flow the property actually produces once the new payment starts.

House hackers. Buying a duplex or a fourplex, living in one unit and renting the rest. Cash flow is measured against a smaller personal housing cost, so a deal that looks thin on paper can still beat paying rent somewhere else. Enter rent for the units you do not occupy and read the same cards.

Real estate agents. Turning a listing price into a verdict in one pass, and getting a concrete number to show a seller whose asking price is above what an investor can pay. The DSCR card is usually the one that starts that conversation, because coverage is what decides whether the loan closes.

Retirement-income buyers. Wanting cash flow over appreciation and a low-maintenance property. For them the hold is long enough that the IRR matters less than the check arriving every month, so cash flow and cap rate carry the decision. Six different people, one question: does this rental property pay enough for what it costs.

Every metric this calculator shows

The dashboard answers six questions in the order a landlord asks them: what does it pay me this year, what does the whole hold return, what do I walk away with, what is that on my cash, what does the building earn, and will a lender finance it. Each card is worth a specific decision.

Year 1 Cash Flow: the first question every rental investor asks, which is what lands in my account this year. It is NOI minus the annual mortgage payment, so on the example deal it comes to $425 a month and $5,098 a year. Positive is the floor, and the card turns red when a property needs a subsidy from its owner.

IRR: the annualized return across the whole hold, with the sale included. It is 14.32% over ten years on the example deal, and it is the only card that counts the mortgage being paid down and the property appreciating. That is why it reads far higher than cap rate or cash-on-cash on the same property.

Total Profit at Sale: everything you walk away with once the loan is repaid and the selling costs are paid. On the example deal it is $155,272, made up of $79,267 of cash flow, $85,979 of appreciation and $28,545 of principal paydown, less $23,519 to sell and $15,000 of closing and repairs.

Cash-on-Cash Return (Year 1): the return on the cash you actually wrote a check for. It is year 1 cash flow over the cash in the deal, $5,098 over $77,500, or 6.58% here. It rises with leverage while a deal works and falls harder than any other card when it does not.

Cap Rate: what the building earns before a loan exists, because it is NOI over purchase price. On the example that is $19,320 over $250,000, or 7.73%. It never sees the mortgage, which is what makes it the one return a buyer, a seller and an appraiser can all agree on.

DSCR: whether the property covers its own mortgage. It is NOI over annual debt service, 1.36 on the example deal, and it is the lender's coverage test as much as your own. Most lenders want 1.25 or better, so the gap between 1.36 and a decline is often one point of interest rate.

How to use this calculator in 5 steps

Enter the purchase numbers first: price, closing costs and repairs. Those are the market inputs, and together with the down payment they set the cash in the deal, which is the denominator of every return on the page. Every field updates the whole dashboard as you type.

Set the financing second. Down payment percentage, interest rate and loan term drive the mortgage payment, and the payment drives cash flow, cash-on-cash and DSCR together. Move the rate by half a point and watch all three cards respond before touching anything else.

Load operating expenses and income third. Tax, insurance, HOA, maintenance and management on one side; rent, other income and vacancy on the other. These are the lines most often set too low, so start from what the property actually costs and let the cash flow figure be the honest one.

Choose the hold and the growth rates last. The hold period decides how long the returns compound, while appreciation, rent growth, expense growth and selling cost decide what the exit is worth. Try a short hold and a long one on the same inputs; the IRR card shows how much the timeline matters.

Save up to three deals to compare them side by side without re-entering numbers, then copy the link to keep or share the exact inputs. Saved deals live in your browser only. Empty fields fall back to the example deal shown in gray, so a half-filled sheet still answers.

The last thing to change is often the first thing to check. If the cash flow card is negative, adjust rent, price or the interest rate before touching the growth assumptions, because the first year is the year you actually have to fund. Growth rates change the exit; cash flow changes whether you can hold on until it arrives.

When two deals look close, save both and let the compare table line them up across all six metrics. The difference that matters usually shows up in one row, and seeing it side by side is faster than re-entering the numbers and trying to remember the last result.