What rental cash flow measures
Cash flow is the rental income remaining after operating expenses, capital reserves, and loan payments. A positive estimate depends on the assumptions you enter; actual vacancy, repairs, rent, and financing can differ.
Calculate collected rent
Start with monthly scheduled rent and subtract a vacancy allowance. Add other income only if the property is expected to earn it.
For example, $2,200 in monthly rent with a 5% vacancy allowance produces $2,090 in modeled collected rent.
Subtract operating expenses
Include property taxes, insurance, management, routine maintenance, HOA dues, and owner-paid utilities. Keep mortgage payments separate from operating expenses.
Use property-specific costs where available. If you use percentages for management or maintenance, state whether they apply to scheduled or collected rent. DoorHunter's standalone rental calculator applies them to collected rent.
Net operating income (NOI) is collected income less operating expenses. This guide keeps capital reserves separate from NOI, consistent with the calculator.
Subtract reserves and loan payments
Monthly cash flow = monthly NOI - capital reserves - monthly principal and interest payments.
Replacement reserves are also treated separately from NOI in Fannie Mae's net cash flow definition. Definitions can vary across reports, so check which costs a calculation includes.
Worked example
This is an illustrative purchase, not a current listing. Assume a $260,000 purchase price, 20% down, and a $208,000 fixed-rate mortgage at 6.75% over 30 years. Management, maintenance, and capital reserves below use collected rent.
| Monthly income or cost | Amount |
|---|---|
| Scheduled rent | $2,200.00 |
| Vacancy allowance (5%) | -$110.00 |
| Collected rent | $2,090.00 |
| Property taxes | -$280.00 |
| Insurance | -$105.00 |
| Management (8%) | -$167.20 |
| Maintenance (5%) | -$104.50 |
| Net operating income | $1,433.30 |
| Capital reserves (5%) | -$104.50 |
| Mortgage principal and interest | -$1,349.08 |
| Estimated cash flow before income tax | -$20.28 |
The result is a small monthly deficit under these assumptions. The percentages are example inputs, not measured market averages or recommended budgets.
Calculate cash-on-cash return
Cash-on-cash return = annual cash flow before income tax / initial cash invested x 100%.
Initial cash includes the down payment, closing costs, upfront loan fees, and cash-paid renovation or setup costs. If the denominator is zero or negative, this ratio is not applicable.
Review the assumptions
Replace example costs with tax estimates, insurance quotes, loan terms, and a repair scope for the property. Keep reserves separate to avoid counting them twice. Test lower rent and higher costs as well as your expected case.