How to Analyze Cash Flow on a Rental Property
Cash flow is the money left over after you collect rent and pay every expense — mortgage, taxes, insurance, vacancy, and maintenance. Here is the exact formula and a worked example.
How to Analyze Cash Flow on a Rental Property
Cash flow on a rental property is the net income remaining after you subtract all operating expenses and debt service from your gross rental income. Positive cash flow means the property pays for itself and puts money in your pocket each month. Negative cash flow means you are subsidizing the property out of your own income — a situation that is unsustainable for most investors.
This guide walks through the complete cash flow formula, a worked example using a real property scenario, and the most common mistakes that cause investors to overestimate their returns.
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The Rental Property Cash Flow Formula
Monthly Cash Flow = Gross Rental Income
- Vacancy Reserve
- Operating Expenses
- Debt Service (Mortgage Payment)
Breaking each component down:
Gross Rental Income
The total rent collected per month. If you have a duplex renting at $1,400/unit, gross rental income is $2,800/month.
Vacancy Reserve
Budget 8% of gross rent as a baseline. This accounts for roughly one month of vacancy per year, plus turnover costs (cleaning, minor repairs between tenants). In high-demand markets you might reduce this to 5%; in softer markets, increase to 10%.
Operating Expenses
These are the costs of owning and operating the property, excluding the mortgage:
Expense How to Estimate
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Property taxes Check county assessor (typically 0.5-2% of assessed value annually)
Insurance Get quotes; FL averages $250-400/mo, TX $150-250/mo
Maintenance/repairs 1% of property value per year ($250K property = $2,500/yr = $208/mo)
Capital expenditure reserve $100-200/mo for roof, HVAC, water heater replacement
Property management 8-10% of collected rent (even if self-managing, include this for accurate underwriting)
HOA fees If applicable
Utilities (owner-paid) Water, sewer, trash if not tenant-paid
Debt Service
Your monthly mortgage payment (principal + interest). On a $213,750 loan at 7% over 30 years, the monthly P&I payment is approximately $1,422.
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Worked Example: Jacksonville, FL Duplex
Let's analyze a duplex purchased for $285,000.
Property Details:
- Purchase price: $285,000
- Down payment: 25% ($71,250)
- Loan amount: $213,750 at 7% / 30 years
- Monthly rent: $1,400/unit x 2 = $2,800/mo gross
Monthly Income & Expenses:
Line Item Monthly Amount
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Gross rental income $2,800
Vacancy reserve (8%) -$224
Property taxes (0.9%) -$214
Insurance -$280
Maintenance reserve (1%/yr) -$238
CapEx reserve -$150
Property management (8%) -$224
Mortgage (P&I) -$1,422
Net Monthly Cash Flow $48
Annual Cash Flow: $576
That is a razor-thin margin. One unexpected repair or extended vacancy wipes out the entire year's profit. This deal is borderline at best.
Making the Numbers Work
What if you found the same duplex for $245,000 (distressed, off-market)?
- Loan amount: $183,750 at 7%
- Monthly P&I: $1,223
- Same rent: $2,800/mo
Line Item Monthly Amount
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Gross rental income $2,800
Vacancy reserve (8%) -$224
Property taxes (0.9% of $245K) -$184
Insurance -$280
Maintenance reserve -$204
CapEx reserve -$150
Property management (8%) -$224
Mortgage (P&I) -$1,223
Net Monthly Cash Flow $311
Annual Cash Flow: $3,732
That $40,000 purchase price reduction transformed the deal from borderline to solid. This is why acquisition price matters more than any other variable in rental property investing.
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Cash Flow Benchmarks for 2026
Cash Flow Per Door Assessment
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Negative Do not buy — you are paying to own this property
$0-100/door Weak — no margin for error
$100-200/door Acceptable in appreciation markets
$200-400/door Strong cash flow play
$400+/door Excellent — verify your numbers are realistic
In the current rate environment (6.5-7.5%), $200+/door after all reserves is a solid target for buy-and-hold investors in Sun Belt markets.
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5 Common Cash Flow Mistakes
1. Ignoring Vacancy