How rental cash flow is estimated
A rental property earns its keep only if the rent it collects exceeds everything it costs to own. This calculator starts with your asking rent and trims it by a vacancy allowance, because units inevitably sit empty between tenants. From that effective rent it subtracts operating expenses and the monthly mortgage payment to arrive at cash flow.
It then expresses the result in two ways investors care about: the cap rate, which compares net operating income to the purchase price and ignores financing, and the cash-on-cash return, which compares your annual cash flow to the cash you actually invested.
Reading the cash-flow waterfall
The chart walks from income down to what you keep: effective rent after vacancy, then operating expenses, then the mortgage payment, and finally the cash flow left over.
Laid out this way it is easy to see which line is squeezing your return. Often the mortgage payment is the dominant cost, which is why the same property can cash-flow comfortably with a large down payment yet bleed money with a small one at a high rate.
Building realistic inputs
The output is only as honest as the assumptions you feed it.
- Set a vacancy rate that matches the local market rather than assuming full occupancy.
- Make sure monthly expenses include taxes, insurance, management, and a reserve for repairs — not just obvious bills.
- Negative cash flow means you would subsidise the property each month, which only makes sense if you are betting on appreciation.
- Cap rate judges the asset; cash-on-cash judges your financed position.
Limitations
This is a present-day snapshot and does not model rent growth, major capital expenditures, tax treatment, or the proceeds of an eventual sale. Use conservative figures and a margin of safety before buying. This is general information, not investment advice.
Formula
effectiveRent = rent·(1−vacancy%); cashFlow = effectiveRent − expenses − paymentFrequently asked questions
- Why include a vacancy rate?
- Units sit empty between tenants, so collected rent is lower than asking rent. A vacancy allowance gives a more realistic cash-flow estimate.