A rental cash flows when the rent you actually collect covers every operating cost and the mortgage, with money left over. This calculator builds that answer line by line, so you can see which assumption makes or breaks the deal.
How the calculation works
- Effective gross income (EGI) = rent × units × 12, minus vacancy and credit loss, plus other income such as laundry or parking.
- Operating expenses = property tax + insurance + HOA + owner-paid utilities + other costs, plus management (a share of rent collected) and repairs and capital reserves (a share of gross rent).
- Net operating income (NOI) = EGI − operating expenses. NOI ignores the mortgage, so you can compare properties no matter how they are financed.
- Cash flow = NOI − yearly principal and interest. This is before income taxes.
- Ratios. Cap rate = NOI ÷ price. Cash-on-cash return = cash flow ÷ cash invested (down payment, closing costs and rehab). DSCR = NOI ÷ debt service. Expense ratio = operating expenses ÷ EGI.
Worked example
A two-unit building costs $450,000. You put 25% down, borrow $337,500 at 7% for 30 years, and pay $12,000 in closing costs plus $10,000 in repairs. Each unit rents for $1,800 a month, and laundry brings in $50.
| Line | Per year |
|---|---|
| Gross rent (2 × $1,800 × 12) | $43,200 |
| Vacancy at 5% | −$2,160 |
| Other income ($50 × 12) | +$600 |
| Effective gross income | $41,640 |
| Tax $7,200, insurance $2,400, utilities $1,800, other $600 | −$12,000 |
| Management 8% of rent collected | −$3,283 |
| Repairs 5% + capital reserves 5% of gross rent | −$4,320 |
| Net operating income | $22,037 |
| Mortgage P&I ($2,245 × 12) | −$26,945 |
| Cash flow | −$4,908 (about −$409 a month) |
The cap rate is 4.9%, the DSCR is 0.82 and cash-on-cash return is −3.6% on $134,500 of cash. The building runs fine as a business (NOI is positive), but at this price and rate the loan costs more than the property earns. To break even you would need more rent, a lower price, a bigger down payment or a lower rate. Try each in the calculator to see which gap is smallest.
Choosing your inputs
- Property tax and insurance: use the actual tax bill and an insurance quote for a rental (landlord) policy, not the seller's numbers if the purchase will trigger a reassessment.
- Vacancy: include turnover time between tenants and unpaid rent, not just empty months.
- Management: even if you self-manage, entering a fee shows whether the deal still works if you later hire help.
- Growth rates: the 5-year table grows rent and expenses at your rates while the mortgage payment stays fixed. In rent-regulated apartments, increases are set by law, so use the allowed rate instead of a market guess.
Cash flow vs taxable income
The IRS treats your rental differently from your bank account. According to Publication 527, you report rental income and expenses on Schedule E; you can deduct mortgage interest but not principal; improvements must be capitalized and depreciated (residential rental buildings over 27.5 years); advance rent counts as income when you receive it; and a security deposit you plan to return is not income. Depreciation often makes taxable income lower than cash flow.
Next steps
Dig into one number at a time with the cap rate, cash-on-cash and DSCR calculators. See how much vacancy you can survive with the break-even occupancy calculator, estimate your deduction with the rental depreciation calculator, and read rental income taxes for small landlords.