Rental Cash Flow Calculator

What is Cash Flow?

Rental property cash flow is the difference between the rent you collect and the expenses you must pay to run your rental property. These expenses typically include your mortgage payment, property management fees, utilities, repairs, maintenance, vacancies, and more. Before you buy a rental property, you can estimate cash flow to determine how viable the investment is. 

Why Is Cash Flow So Important?

Cash flow is the lifeblood of rental property investing and allows you to make passive income so you can grow your real estate portfolio. Increasing your cash flow means getting paid more every month from your property! Cash flow keeps your property afloat during tough market cycles! Positive cash flow from one property can offset losses from another.

Before making this calculation, set a target rental yield. If the calculation falls below the target you've set, you should move on to another property immediately. 

How to Calculate Rental Property Cash Flow

To accurately calculate cash flow, you must perform a calculation that accounts for the property price, financing costs, your expenses, and the rent you collect. Below is a step-by-step guide on how to calculate rental property cash flow. 

When using our rental calculator, all highlighted cells within the spreadsheet must be inputted by you. Once you enter the correct data, you'll be able to calculate your rental property cash flow. 

Step 1. Enter Property Price and Appraisal Estimate

The first step in making this calculation involves entering the price of the property as well as the appraisal estimate. These two price points can differ. If you purchased the property (or plan to) for less than the appraisal amount, you’re walking into equity! If you don’t have the exact appraisal amount, feel free to just use the purchase price for that value. 

Step 2. Enter Financing Costs

The next step in this process involves entering the financing costs, which include your down payment, closing costs, and interest rate. Keep in mind that closing costs are usually around 2% of the purchase price. 

Step 3. Enter Variable Expenses and Rent

The values you need to list in this section include your monthly rent, annual property tax, utilities, landscaping, and insurance premiums. You must also consider the vacancy rate, property management costs, and maintenance expenses. When you're calculating cash flow before buying a rental property, you must estimate your expenses. You can do so by researching comparable properties in the vicinity.

Step 4. Calculate Your Cash Flow!

Now, you'll see your yearly cash flow estimate updated! You can use this to decide whether a property is worth investing in. While a negative cash flow doesn't necessarily rule a property out, it's best to make at least $100 per unit every month.

How to Estimate Variable Expenses

Estimating variable expenses is a major aspect of calculating the property's potential cash flow. It's also the most complex part of this process. You must consider everything from taxes to maintenance costs. 

Taxes

Average: Varies

You can check the local government's property tax website to see what the current property pays in taxes. However, the home could be reappraised once you buy it, which might lead to an increase in property taxes. You'll need to pay these taxes every year. 

Insurance

Average: Varies

Call a few local insurance agents and give them the exact address you're thinking of. They'll be able to get insurance quotes for you immediately!

Maintenance and Repairs

Average: 5%-20% of your total rent

Older homes will have higher monthly repair costs, while newer ones will usually come with lower repair expenses. Many real estate investors factor in anywhere from 5%-20% of the rent for repairs based on the condition and age of the home. 

If you're buying a building that's 50 years old and in poor condition, you'll likely need to allot closer to 20% of your rent to monthly repair costs. Turnkey real estate investments are newly updated and renovated when sold, meaning repair bills are usually substantially less! 

Vacancy

Average: 8% of rent

Most real estate investors factor in an 8% vacancy rate when calculating their rental property cash flow. Since 8% of the year is one month, you can assume that you'll be spending one month of the year turning over the unit. Keep in mind, however, that it's impossible to predict how long a vacancy will last. Vacancy times can be reduced with proper marketing. 

Property Management

Average: 10% of the rent

Property management costs are, on average, between 8%-12% of the monthly rent. There are, however, several factors that determine the amount you pay in property management expenses. 

The size of your property and portfolio plays a role in setting the costs. Different types of properties come with unique expectations. Property management services for a multifamily building are often more expensive than they are for single-family properties. 

How to Increase Your Cash Flow

High cash flow is difficult to obtain but can be highly rewarding for your portfolio. While some of your expenses are fixed, there are numerous things you can do to increase the property's cash flow. 

1. Buy for Less!

Your first option is to purchase the property at a lower price. The lower your property cost, the lower your mortgage payment, which means that more money goes into your pocket! Unless the seller is receiving numerous offers, you may have some negotiating power. The seller may be more willing to reduce the price if you cover some of the repairs yourself.

2. Lower Your Interest Rate with a "Rate Buydown"

If you can find a way to lower your interest rate, your monthly payment won't be as high, which means that you'll gain better cash flow. You can effectively reduce your interest rate via a "rate buydown", which will increase your closing costs. 

Did you know that Rent to Retirement offers turnkey rentals with interest rates as low as 3.99%? Not only that, Rent to Retirement can even help you buy your first or next turnkey property with no or low money down! 

3. Raise the Rent

If you think your rent is below market value, it may be time to implement a rent raise. Rentometer and BiggerPockets Rent Estimator are two great tools to use if you're struggling with how much to charge for rent. If you purchase a property in an appealing location, your existing tenants may accept a rent increase without issue.

4. Switch Your Strategy

Switching your rental property from a long-term rental to a medium-term or short-term one can dramatically increase your cash flow. Medium-term rentals provide tenants with 30-day stays. Short-term rentals involve stays that are less than 30 days. They can produce double the rent in comparison to long-term rentals.

Check out Rent to Retirement’s short-term turnkey rental properties for sale! 

5. Renovate Your Rental

A home renovation can significantly increase demand for your rental property, which will, by default, lead to higher rents and potentially more cash flow. The best renovations should also improve the value of your property, which can be advantageous when you decide to sell. 

Ready to Calculate Cash Flow?

Now that you understand how to estimate variable expenses, you should be ready to calculate your cash flow. Identifying a property's cash flow before you buy allows you to make an informed purchase decision. It's also the first step you must take to begin improving your cash flow. Get started with Rent to Retirement's Rental Property Calculator.

Rental Property Cash Flow Calculator FAQs

How Do You Calculate Cash Flow in Real Estate?

You can calculate cash flow by subtracting all your expenses from the amount of money you bring in each month. If you collect $2,000 in rent but spend $1,800 in total expenses, your cash flow will be $200.

What Is the Formula for the Cash Flow of a Rental Property?

While there are several methods you can use to calculate a rental property's cash flow, the easiest one is:

Rent - Fixed Expenses - Variable Expenses = Cash Flow

You can do this calculation once you add up your fixed and variable expenses. Look at every potential expense to make sure your cash flow calculations are accurate.

What Is the 50% Rule Cash Flow Estimate?

When you're making cash flow estimates, consider using the 50% rule. This rule states that the property's operating expenses should amount to roughly 50% of the rent you collect. For example, let's say that you collect $28,000 in rent for the year. Your operating expenses could then be assumed to be around $14,000.

Keep in mind, however, that the 50% rule doesn't consider all monthly and annual expenses you can expect to pay. It often excludes HOA fees, mortgage payments, and property management fees.