Understanding Rental Cash Flow Analysis

Cash flow is the lifeblood of rental property investing. Understanding how to accurately analyze cash flow separates successful investors from those who struggle. Let's break down the key components.

What is Cash Flow?

Simply put, cash flow is the money left over after all expenses are paid:

Cash Flow = Rental Income - All Expenses

Positive cash flow means you're making money each month. Negative cash flow means you're losing money.

Key Income Components

Gross Rental Income

The total rent you could collect if the property is fully occupied.

Other Income

• Pet fees
• Parking fees
• Laundry income
• Storage fees
• Late fees

Vacancy Allowance

No property stays 100% occupied. Budget 5-10% for vacancy and turnover costs.

Key Expense Categories

Fixed Expenses

• Mortgage (P&I) – Principal and interest payment
• Property taxes – Usually 1-2% of value annually
• Insurance – Landlord policy, typically $800-1,500/year
• HOA fees – If applicable

Variable Expenses

• Repairs & maintenance – Budget 5-10% of rent
• CapEx reserves – Save for big-ticket items (roof, HVAC, etc.)
• Property management – 8-10% if you hire out
• Utilities – If not paid by tenant

Key Metrics to Know

Cash-on-Cash Return (CoC)

Annual cash flow divided by total cash invested. A 10%+ CoC is generally considered good.

Cap Rate

Net Operating Income divided by property value. Useful for comparing properties.

The 1% Rule

Monthly rent should be at least 1% of purchase price. This is a quick screening tool, not a definitive analysis.

Common Mistakes

1. Underestimating expenses – Be conservative
2. Ignoring vacancy – It will happen
3. Forgetting CapEx – Roofs and HVAC don't last forever
4. Unrealistic rent estimates – Check actual comps, not Zestimates

Analyze Your Deal

Ready to run the numbers on a potential rental? Use our Rental Cash Flow Calculator to see if a property will actually cash flow.