Analyze rental property cash flow, cap rate, and cash-on-cash return. Includes vacancy rate, maintenance costs, property management fees, and annual appreciation.
Cash flow, cap rate & cash-on-cash return
A rental property cash flow calculator forces you to look at real-world expenses that too many first-time landlords underestimate. Gross rental income is just the starting point. Subtract vacancy (typically 5%–8% of gross rent), property management (8%–12% of rent if you hire a manager), insurance ($1,200–$2,000/year), property taxes (1%–2% of value), maintenance (budget 1% of property value annually), and then the mortgage payment. What's left is monthly cash flow — and for many properties in competitive US markets, that number is surprisingly thin or even negative on day one.
Serious real estate investors use multiple metrics together. Cap rate — Net Operating Income divided by purchase price — tells you the property's income yield before financing and is typically 4%–6% in major US metros. Cash-on-cash return compares annual pre-tax cash flow to actual cash invested (down payment + closing costs), making it the most direct measure of your real return on invested dollars. The 1% rule — monthly rent should equal at least 1% of purchase price — is a quick filter for cash flow potential. A $300,000 property that rents for $2,000/month barely passes (0.67%), while one renting for $3,000/month clears the threshold easily.
Positive monthly cash flow after all expenses provides a financial cushion for repairs, vacancies, and emergencies. Many experienced investors won't buy a property unless it generates at least $100–$200/month positive cash flow from day one.
Cap rate = NOI / Property Value. A $300,000 property with $18,000 annual NOI has a 6% cap rate. Higher cap rates suggest better income yield (and often higher risk markets). Major coastal cities often see 3%–4% cap rates.
If you put $75,000 down and net $6,000/year after all expenses and mortgage, your cash-on-cash return is 8%. This metric directly compares rental income to your cash investment — important for comparing deals across different price points.
Monthly rent should be at least 1% of the purchase price for positive cash flow potential. A $200,000 rental should rent for $2,000+/month. This is a quick filter — not a guarantee — but screens out obvious cash flow losers.
Rental property analysis layers financing on top of the cap-rate calculation, and the two metrics answer different questions. Cap rate measures the asset; cash-on-cash return measures your money, dividing annual pre-tax cash flow by the actual cash invested. Leverage magnifies both directions — when the cap rate exceeds the mortgage rate, borrowing raises cash-on-cash return, and when it does not, borrowing destroys it. Total return is broader still, adding principal paydown, appreciation and depreciation tax shelter, all of which are real but none of which pay this month's bills.
Cash flow = NOI − Annual debt serviceCash-on-cash = Annual cash flow ÷ Total cash investedTotal cash invested = down payment + closing costs + initial repairsDSCR = NOI ÷ Annual debt servicewhere:
Assumptions: Pre-tax. Excludes capital expenditure reserves, which should be budgeted separately at roughly 5–10% of rent — roofs and boilers do not appear in any month until they appear in one.
Take the same building and add a mortgage to see what the investor actually earns.
Result$11,817 a year — a 6.93% cash-on-cash return, DSCR 1.31
Cash-on-cash (6.93%) is below the cap rate (7.66%) because the 6.75% mortgage rate is close to the cap rate, so leverage adds almost nothing. Add roughly $9,900 of first-year principal paydown and the total return improves considerably — but that portion is not spendable.