How to calculate rental property cash flow
Cash flow is what’s left of the rent after every bill and the mortgage are paid. Start with the rent you expect to collect, take off an allowance for vacancy, then subtract operating costs: property tax, insurance, maintenance, any HOA or condo fees and a property manager if you use one. What’s left is net operating income (NOI). Subtract the mortgage payment from NOI and you have cash flow.
Cash flow = rent collected − operating costs − mortgage payment
In the US example, a $350,000 rental renting for $2,750 a month collects $31,350 in its first year after 5% vacancy. Operating costs come to $9,400, leaving $21,950 of NOI. The mortgage takes $20,431, so cash flow is about $127 a month.
For a duplex, triplex or fourplex, set the number of units and enter the rent for one unit. The calculator adds up the rent from every unit, and the break-even rent in the results is per unit.
Cash-on-cash return, ROI and cap rate
These three numbers answer different questions, so it helps to look at all of them.
- Cap rate is NOI divided by the price. It ignores the mortgage, so it compares properties on their own merits. The example’s cap rate is 6.3%.
- Cash-on-cash return is one year of cash flow divided by the cash you put in: down payment, closing costs and any repairs. The example puts in $98,000 and earns 1.6% cash-on-cash. The cash-on-cash return calculator goes deeper.
- ROI adds the two returns cash flow leaves out: the mortgage principal your tenant paid off and the change in value. The example’s first-year ROI is 15.1%.
ROI = (cash flow + principal paid + value growth) ÷ cash invested
The gap between 1.6% and 15.1% is why owners keep rentals that barely cash-flow: most of the return builds quietly as equity.
IRR: one number for the whole investment
The internal rate of return (IRR) is the yearly return on every dollar for as long as it’s invested. It counts the cash you put in at the start, each year’s cash flow, and the cash left after selling, and it weighs each by when it arrives. That makes it the fairest way to compare a rental with a savings account, an index fund or another property.
Held for 10 years and sold after 6% selling costs, the example works out to an IRR of 11.4% a year, with a total profit of $167,557 on $98,000 put in. The year-by-year table in the results shows the IRR for selling at the end of every year, so you can see how the return changes with the length of the hold.
Return on equity: the number owners forget
Once you own a rental, the money that matters is no longer the cash you put in years ago. It’s the equity you have in the property today, because that equity could be doing something else. Return on equity (ROE) measures how hard it’s working:
Return on equity = (cash flow + principal paid + value growth) ÷ equity at the start of the year
Equity grows every year as the loan shrinks and the value rises, so ROE tends to fall even when nothing is wrong. In the example, ROE starts at 16.9% and is 11.9% by year 10. When it drops below what the equity could earn elsewhere, owners usually start weighing a refinance, a sale or using the equity to buy another property. Choose I already own it to see this for your own rental, or use the rent vs sell calculator.
Repairs and the value after repairs
If a property needs work before it can be rented, add the repair costs and what it should be worth once they’re done. The repairs count as cash you put in, and the property’s growth starts from the after-repair value. A common screen for buying a property that needs work is the 70% rule: pay no more than 70% of the after-repair value, minus the cost of the repairs.
Canadian mortgages compound differently
In Canada, fixed-rate mortgages compound semi-annually rather than monthly, so the same quoted rate costs a little less than it would in the US. Variable-rate mortgages usually compound monthly. Most online calculators use US maths. This one switches when you choose Canada: the Canadian example, a $550,000 property at 4.50% fixed over 25 years, has a payment of $2,435 a month. The Canadian rental property calculator starts in Canadian dollars, with land transfer tax and down payment notes.
Rules of thumb, and where they break
- The 1% rule: monthly rent of at least 1% of the price. Few homes in expensive cities pass it, and many that do need more repairs.
- The 50% rule: expect operating costs, not counting the mortgage, to take about half the rent. Real costs vary a lot with the age of the building, taxes and who pays utilities.
- Debt service coverage (DSCR): NOI divided by the mortgage payments. Many lenders want at least 1.2 to 1.25 on rental loans approved on the property’s income.
Rules of thumb are fine for a first look. The calculator above is the second look.
After you buy: track it from day one
Every number in this calculator is a forecast. Once you own the property, the real ones start arriving: the rent that actually came in, the repair you didn’t plan for, the tax bill that went up. Owners who write these down as they happen always know their real cash flow and equity. Owners who don’t end up rebuilding a year from bank statements at tax time, and rarely know which property is pulling its weight.
The simplest system is three habits:
- Run the numbers before you buy, as you did here.
- Track it from day one: rent, bills, repairs and the mortgage, as they happen.
- Review it every year against the plan: cash flow, equity and return on equity.
It works the same for one property or ten, and it’s far easier to start with the first than to catch up at the fifth. A spreadsheet can do it. EquityRise does it for you, with the same maths as this calculator.
Frequently asked questions
What is a good cash flow for a rental property?
There is no single number. What matters is that the cash flow is positive after every real cost: vacancy, repairs, property tax, insurance, any management fee and the full mortgage payment. Many owners also look at total return, because mortgage paydown and value growth often add more than cash flow does, especially in expensive markets.
What is a good cash-on-cash return?
Cash-on-cash return is one year of cash flow divided by the cash you put in. Investors often compare it with what the same cash could earn elsewhere, such as a savings account or an index fund. A low cash-on-cash return can still be a good investment if paydown and growth are strong, and a high one can hide thin margins for repairs.
What is IRR on a rental property?
IRR, the internal rate of return, is the yearly return that accounts for when every dollar goes in and comes out: the cash you put in at the start, each year’s cash flow, and the cash from selling at the end. It is the best single number for comparing a rental with other investments, because it counts the timing of the money as well as the amount.
What is the difference between ROI and cash-on-cash return?
Cash-on-cash return counts only the cash that reaches your pocket. ROI in this calculator counts the whole first-year return: cash flow, plus the mortgage principal your rent paid off, plus the change in value, all divided by the cash you put in.
How do you calculate return on equity for a rental property?
Add up one year of cash flow, mortgage principal paid and value growth, then divide by the equity you had at the start of that year. Equity is the property’s value minus what you still owe on it. Because equity grows every year, return on equity usually falls over time even when the property is doing well.
What is the 1% rule?
The 1% rule is a quick screen that says monthly rent should be at least 1% of the purchase price, so a $300,000 home should rent for $3,000 a month. It ignores interest rates, taxes and local costs, so treat it as a first filter only. Running the full numbers in a calculator like this one is more reliable.
Should mortgage principal count as an expense?
It leaves your bank account, so it reduces cash flow. But it is not a cost in the way interest is: every dollar of principal lowers your loan and adds a dollar of equity. This calculator subtracts the full payment from cash flow, then adds principal back when it shows total return.
Can I use it for a duplex or triplex?
Yes. Set the number of units, up to 20, and enter the monthly rent for one unit. The calculator multiplies it by the number of units, then takes off vacancy, costs and the mortgage for the whole building, as it would for a house.
Does this calculator work for Canadian rental properties?
Yes. Choose Canada and the mortgage follows Canadian rules: fixed-rate mortgages compound semi-annually, as Canadian lenders quote them, and variable rates compound monthly. Amounts are in Canadian dollars and the examples use Canadian prices, rates and costs.
How accurate are the results?
The results are only as good as the numbers you enter. The mortgage maths matches a standard lender schedule, but rent, costs, growth and vacancy are your estimates. Mortgage insurance, inflation, income tax and capital gains tax are left out. Use the results to compare options, not as financial advice.