How do you calculate cash flow on a rental property?

Cash flow equals Net Operating Income (NOI) minus debt service (mortgage payments) minus capital expenditure reserves. For example, if your property earns $24,000 NOI and your annual mortgage payments total $16,800 with $1,200 in CapEx reserves, your annual cash flow is $6,000 or $500 per month.

Is negative cash flow always bad?

Not always, but it requires caution. Some investors accept short-term negative cash flow if the property is in a high-appreciation market and they have strong reserves. However, negative cash flow drains your savings every month and increases risk if the market corrects or vacancies rise.

How does vacancy affect rental property cash flow?

Vacancy directly reduces income without reducing expenses. A single month of vacancy on a $1,800/month rental costs you $1,800 in lost rent plus ongoing expenses like the mortgage, insurance, and taxes. Most investors budget 5% to 8% vacancy, which equals roughly 2 to 4 weeks per year.

How much should I keep in reserves for a rental property?

A common guideline is 3 to 6 months of total expenses (including mortgage) per property. For a property with $2,200 in monthly obligations, that means $6,600 to $13,200. Additionally, budget $100 to $200 per month per unit for future capital expenditures like roof replacement and appliance upgrades.

Rental Property Cash Flow Analysis: How to Calculate and Improve It

Q: What is the $100 per door rule?

The $100 per door rule is a quick screening guideline suggesting that each rental unit should produce at least $100 per month in cash flow after all expenses and debt service. It is a minimum threshold, not a target. Many investors aim for $200 or more per door.

What Is Rental Property Cash Flow?

Cash flow is the money left over after you collect rent and pay every expense, including the mortgage. It is the most tangible measure of a rental property's performance because it represents real dollars deposited into your bank account each month. While metrics like cap rate and NOI are important for evaluating deals, cash flow is what keeps you solvent as a landlord. A property can look great on paper with a high cap rate, but if the mortgage payment wipes out the NOI, your cash flow is zero or worse. Positive cash flow means the property sustains itself and generates income. Negative cash flow means you are paying out of pocket every month to own it.

The Cash Flow Formula

The complete formula:

Cash Flow = Gross Income - Operating Expenses - Debt Service - CapEx Reserves

Or, if you already know NOI:

Cash Flow = NOI - Debt Service - CapEx Reserves

Debt service is your total annual mortgage payment, including both principal and interest. CapEx reserves are the money you set aside each month for future major repairs like roof replacement, HVAC systems, or appliance upgrades. Some investors include CapEx reserves in their operating expenses when calculating NOI, but the standard approach keeps them separate.

Try it yourself:

Cash Flow Calculator

Annual Gross Income ($)

Annual Operating Expenses ($)

Monthly Mortgage P&I ($)

Monthly vs. Annual Cash Flow Analysis

Most landlords think about cash flow monthly because that is how rent arrives and bills are paid. However, annual analysis gives a more accurate picture because it smooths out seasonal variations. Your monthly cash flow might look great in summer when occupancy is high, but a vacant December and a January furnace repair could wipe out two months of gains. Always run the numbers both ways. Monthly tells you if you can cover next month's obligations. Annual tells you if the property is truly profitable over a full cycle.

For example, a property with $2,000/month in rent, $700 in operating expenses, and a $1,050 mortgage produces $250/month in cash flow. On an annual basis, that is $3,000 before accounting for vacancy. With one month vacant, annual cash flow drops to $1,000. Add a $1,500 repair and you are at a break-even year, not a profitable one.

Positive vs. Negative Cash Flow

Positive cash flow means the property generates more income than it costs to own and operate. This is the goal for most rental investors, especially those building a portfolio for passive income. Even $200 per month in positive cash flow means the property is self-sustaining and contributing to your wealth.

Negative cash flow means you are subsidizing the property from your personal funds each month. Some investors deliberately accept negative cash flow in high-appreciation markets like San Jose or Boston, betting that property value gains will more than compensate. This strategy requires deep financial reserves and a high tolerance for risk. If appreciation stalls or rents drop, you are stuck funding the shortfall indefinitely.

A useful rule of thumb: never buy a property that requires more than $200 per month out of pocket unless you have at least 12 months of negative cash flow set aside in reserves and a clear path to breakeven (such as a below-market rent that will reset at lease renewal).

The $100 Per Door Rule

The $100/door rule is a quick screening tool used by many rental investors. It states that each unit in a property should generate at least $100 per month in cash flow after all expenses and debt service. For a single-family home, that means $100/month minimum. For a fourplex, the target is $400/month total ($100 per unit).

This rule works well as a floor, not a ceiling. In affordable markets like Memphis, Kansas City, or Birmingham, many properties exceed $200 per door. In expensive coastal markets, hitting $100 per door can be difficult without a significant down payment. If a deal cannot clear $100/door, it deserves extra scrutiny. Either the purchase price is too high, the rents are below market, or the expenses are inflated.

Keep in mind that the $100/door figure assumes you have already accounted for vacancy, maintenance, CapEx reserves, and property management. Skipping these line items to make the numbers work defeats the purpose of the rule.

How Vacancy Impacts Cash Flow

Vacancy is the single largest variable that can swing a property from profitable to unprofitable. When a unit sits empty, you lose 100% of the rent while still paying the mortgage, taxes, insurance, and any owner-paid utilities. On a $1,800/month rental, each vacant month costs you $1,800 in lost income plus approximately $1,400 in ongoing fixed costs, totaling $3,200 in economic impact.

Most investors budget 5% to 8% vacancy, which translates to roughly 18 to 29 days per year. However, actual vacancy depends on your market, tenant quality, and property condition. In tight rental markets with less than 3% vacancy rates, you might experience zero vacancy for years. In oversupplied markets or lower-demand neighborhoods, 10% or higher is realistic.

Strategies to minimize vacancy include pricing rent competitively, maintaining the property well, screening tenants thoroughly, and offering lease renewal incentives. A $50/month rent reduction to retain a good tenant is far cheaper than a month of vacancy plus $1,500 in turnover costs (cleaning, painting, advertising).

Building a Reserve Fund

Cash flow analysis is incomplete without accounting for reserves. There are two types every landlord needs:

Operating reserves: Cash set aside to cover unexpected expenses or vacancy. The standard recommendation is 3 to 6 months of total property expenses (including the mortgage). For a property with $2,200 in monthly obligations, maintain $6,600 to $13,200 in reserve. This fund protects you from emergency repairs, extended vacancies, or non-paying tenants without touching your personal savings.

Capital expenditure (CapEx) reserves: A monthly set-aside for major replacements. Roofs last 20 to 30 years, water heaters 10 to 15 years, HVAC systems 15 to 25 years. Budget $100 to $200 per unit per month for these future expenses. On a $150,000 single-family rental, that is $1,200 to $2,400 per year. Without CapEx reserves, a $12,000 roof replacement can wipe out years of accumulated cash flow.

How to Improve Cash Flow

If your property is underperforming, here are actionable ways to boost cash flow:

•Increase rent to market rate. Run comps on Zillow, Rentometer, or local MLS. If your $1,400 unit should be $1,550, that is $1,800/year in additional cash flow.
•Refinance to a lower rate. If rates have dropped since you purchased, refinancing can significantly reduce debt service. Going from 7.5% to 6.5% on a $240,000 mortgage saves roughly $180/month.
•Add revenue streams. Pet rent, storage fees, covered parking, or coin laundry can add $50 to $150 per unit per month.
•Reduce operating expenses. Shop insurance annually, appeal property tax assessments, and switch to LED lighting and low-flow fixtures to reduce owner-paid utilities.
•Self-manage (if practical). Eliminating the 8% to 10% management fee on a $2,000/month rental saves $160 to $200/month. Only do this if you have the time and local presence.

Worked Example: Complete Cash Flow Analysis

Let us run through a full cash flow analysis for a triplex in Columbus, OH:

Property: 3-unit building, purchased for $265,000 with 25% down ($66,250). Loan amount: $198,750 at 7.0% for 30 years. Monthly mortgage payment: $1,322 ($15,864/year).

Income: Unit A: $1,100/month. Unit B: $1,050/month. Unit C: $975/month. Gross monthly rent: $3,125 ($37,500/year). Pet rent: $75/month ($900/year). Total gross income: $38,400/year.

Vacancy allowance: 6% of gross rent = $2,250. Effective gross income: $36,150.

Operating expenses: Property taxes $4,200, insurance $2,400, property management at 8% = $2,892, maintenance $2,800, water/sewer $1,800, landscaping $600, trash $480. Total: $15,172.

NOI: $36,150 minus $15,172 = $20,978.

Debt service: $15,864/year.

CapEx reserves: $150/unit/month x 3 units = $5,400/year.

Annual cash flow: $20,978 minus $15,864 minus $5,400 = -$286/year (-$24/month).

This property is essentially breakeven with aggressive CapEx reserves. Without CapEx reserves, cash flow is $5,114/year ($426/month, or $142/door). If the investor self-manages, eliminating the $2,892 management fee brings total cash flow to $2,606/year even with CapEx reserves, or $7,506/year without them.

Try our free cash flow calculator to analyze your own properties.