Rental property cash flow is the money left after the property receives rent and pays its recurring costs. A property can have positive cash flow, break even, or lose money each month. The calculation is more useful than looking only at the advertised rent because it includes the expenses that determine whether the investment is sustainable.

The basic rental property cash flow formula

Cash flow equals collected rental income minus operating expenses, debt service and planned reserves. Start with the rent you realistically expect to collect, then account for vacancy and unpaid rent instead of assuming the property will be occupied every day of every year.

Income to include

  • Base rent actually collected
  • Parking, storage or pet fees when they are consistent and legal
  • Other recurring income supported by the lease

Do not count a security deposit as income. It normally remains the tenant's money until a lawful deduction is made under applicable state rules.

Expenses landlords often forget

Include property taxes, insurance, association dues, utilities paid by the owner, management fees, repairs, maintenance, accounting, licensing and advertising. Set aside a reserve for major replacements such as roofs, HVAC systems and appliances. Mortgage principal and interest should be shown separately from operating expenses so the result is easy to understand.

Vacancy and a realistic forecast

A conservative forecast subtracts a vacancy allowance even when the current tenant is reliable. The right percentage depends on the market, property type and tenant turnover history. Test the calculation with a higher repair bill, one vacant month and a modest insurance increase. An investment that only works under perfect assumptions deserves additional review.

Official sources and next steps

For tax treatment, check the IRS guidance on rental income and expenses and consult a qualified tax professional. Cash flow is an investment analysis, not a guarantee of return. Compare the result with your financing terms, local rental demand and long-term maintenance plan before buying.

Sources and further reading

Rules and tax treatment can change and may vary by state. Check the current official guidance for the property location before relying on this information.