How to Calculate Rental Property Cash Flow

Rental property cash flow is the rent the property would collect fully leased, minus a vacancy allowance, every operating expense, and the loan's principal and interest payment. Work it out for one full year, then divide by 12, using documents for that property: the county tax bill, a landlord insurance quote, the property manager's fee schedule, and the inspection report. For vacancy, budget the rent lost between tenants; a unit that turns over every two years and sits empty 45 days each time loses about 6.2% of a year's rent.

The cash flow formula, line by line

Depreciation and income taxes stay out of this calculation. Depreciation is a tax deduction, not a payment, and your income tax depends on your whole return. If your lender collects property tax and insurance through an escrow account, count them once, as operating expenses, and enter only principal and interest as debt service.

Where to get each expense number

Rules of thumb such as the 1% and 50% rules are for screening listings. For a specific property, replace each estimate with a document:

• Property tax: the county's current tax bill or the assessor's record for the parcel. Ask the assessor whether your purchase will reset the assessed value; in California, Proposition 13 requires the county assessor to reassess a property to its current market value when ownership changes. Also check the seller's bill for a break you will not get as a landlord, such as Florida's homestead exemption, which is for an owner who makes the home a permanent residence.
• Insurance: a written quote for a landlord policy on this property, not the seller's homeowners premium. Landlord coverage can include the building, detached structures, your liability if a tenant is hurt, and lost rent while a covered loss is repaired. The Idaho Department of Insurance notes that lost-rent coverage may not be standard and can cost extra, so ask for it by name.
• Management: the monthly fee and any one-time charges, such as a leasing fee for each new tenant, from the manager's written fee schedule. Spread one-time fees over the years between tenants. If you plan to manage the property yourself, run the numbers with and without the fee so you know what hiring a manager later would do to cash flow. Property management fees lists the charges to ask about.
• Repairs: the seller's repair invoices for the past two years, adjusted for problems the inspection found.
• Capital reserve: the inspection report's age and condition for the roof, heating and cooling system, and water heater. Divide each replacement cost by its remaining years of life and add the results. The lending handbook of the Office of the Comptroller of the Currency (OCC), which supervises national banks, counts this replacement reserve as an operating expense whether or not the owner actually sets the money aside.
• HOA dues and owner-paid utilities: the association's current dues statement, including any special assessment that has been voted, and the last 12 months of bills for each utility the lease leaves to the owner.
• Mortgage principal and interest: the lender's written quote for the loan amount, rate, and term you will actually use.

How much vacancy to budget

Estimate vacancy from how often the unit turns over and how many days it stays empty each time:

Vacancy allowance = (move-outs per year x days empty per move-out) / 365.

Turnover. Start with the property's own history. The seller's rent roll, the list of tenants, rents, and lease dates, shows how long recent tenants stayed. For a national reference point, the Census Bureau's 2023 Current Population Survey found that 16% of people living in rented homes, about 1 in 6, had moved within the previous year.

Days empty. Count the days to clean, repair, and repaint after a move-out plus the days to advertise, screen applicants, and sign the next lease. When tenants stay two years, each week you cut from a 45-day turnover lowers the allowance by about 1 percentage point.

Market check. Census rental vacancy rates show how many empty units compete for tenants where you are buying. In the second quarter of 2026, 7.3% of the nation's rental housing was vacant and for rent, and the regional rates ran from 5.3% in the West to 9.5% in the South. Census also publishes quarterly rates for each state and for the 75 largest metro areas, with a margin of error for each. Where that margin is several percentage points, average several quarters and treat the result as a rough guide, not a precise input.

A Census rate covers every kind of rental in the area. The OCC handbook says a vacancy assumption should consider vacancies at comparable properties in the same market, so also check how long rentals similar to yours, in the same neighborhood, stayed on the market before leasing. If they took longer than the days empty you assumed, use their number in the formula.

Worked example: a $180,000 single-family rental

A house costs $180,000 and rents for $1,950 a month. The buyer puts 25% down and has a lender's quote of 7.75% on a 30-year loan for the remaining $135,000. Each line comes from a document or a stated assumption:

• County tax bill: $2,520 a year. Landlord policy quote: $1,380 a year.
• Manager's fee schedule: 8% of rent collected, plus a leasing fee of half a month's rent ($975) for each new tenant.
• Repairs: $1,200 a year, the average of the seller's last two years of invoices.
• Capital reserve from the inspection report: a $13,500 roof with 15 years left ($900 a year), a $7,200 heating and cooling system with 8 years left ($900), and a $1,500 water heater with 5 years left ($300), for $2,100 a year.
• Vacancy: tenants have stayed about two years, and a turnover takes 45 days, so 6.2%.
• The tenant pays all utilities, and there is no HOA.

If tenants left every year instead, vacancy would rise to 12.3% ($2,878), the leasing fee would double to $975, and the management fee would fall to $1,642, turning $899 of annual cash flow into a $901 loss. With tenants still staying two years, cutting each turnover from 45 days to 35 lowers vacancy to 4.8% and raises annual cash flow to $1,201.

What the result tells you

This house meets the 1% rule, since its rent is 1.08% of the price, and still clears only $75 a month, because the loan payments take 93% of net operating income.

• A positive number is what an average year should leave you, not the amount you receive each month. The tax bill and insurance premium may come due once or twice a year, a turnover month brings in no rent, and the capital reserve only covers a new roof if you actually set the money aside.
• A negative number is what you would pay from your own funds each year to keep the property.
• To compare with other uses of your money, divide annual cash flow by the cash you put in. Here, $899 on the $45,000 down payment plus about $6,000 of closing costs is a 1.8% cash-on-cash return, which also shows how the down payment and rate change the answer.

For the rest of the buying process, see how to buy your first rental property.