How to Calculate Cash Flow on a Rental Property, Step by Step

The formula: monthly rental cash flow = total rent, minus operating expenses (taxes, insurance, maintenance, vacancy, management), minus the mortgage payment. Below I walk through each line with a worked example, including how the math changes when you live in one of the units.

The formula for rental cash flow, walked through line by line with a real worked example — and why the number changes once you live in one of the units.

“Cash flow” gets used loosely in real estate content. A lot of people quoting a cash flow number on a listing haven’t actually run the math — they’re repeating a figure that sounded reasonable. It’s a specific calculation with specific inputs, and once you’ve done it by hand a few times, you stop trusting a listing’s claimed cash flow until you’ve checked it yourself.

This is the formula I run on every property I look at, with a worked example from an actual listing.

If you haven’t read it yet, What Is House Hacking? covers the bigger picture. This post is about the mechanics underneath it.

What cash flow actually measures

Cash flow is what’s left over after rent comes in and every real cost of owning the property goes out. It’s not the same as profit on paper, which includes depreciation, a deduction that doesn’t cost you actual cash. It’s not the same as return on investment, which measures cash flow against how much money you put in to begin with. Cash flow answers one narrow question: in a given month, did more money come in than went out?

The formula

Cash flow = Gross rental income − Operating expenses − Debt service

Gross rental income is every dollar the property brings in — rent, plus laundry, parking, or storage fees if you charge them.

Operating expenses are the recurring costs of running the property: property taxes, insurance, property management if you use it, a repairs reserve, a capital-expenditures reserve for big-ticket items like a roof or furnace, a vacancy reserve for the months a unit sits empty, and any utilities or HOA fees you cover. A commonly used starting benchmark, per BiggerPockets, is to reserve roughly 10% of rent for property management, 10% for repairs, and 5% for vacancy if you don’t have your own maintenance history yet to work from.

Debt service is your mortgage payment — principal and interest, plus mortgage insurance if you have it. Debt service is not the same as PITI; taxes and insurance already showed up in operating expenses above, so don’t double count them.

A worked example

Take a $300,000 duplex, both units rented at $1,400/month each, for $2,800/month in gross income. Financed with 20% down ($60,000), a $240,000 loan at 6.5% runs about $1,517/month in principal and interest.

• Property taxes: $300/mo
• Insurance: $150/mo
• Property management (10%): $280/mo
• Repairs reserve (10%): $280/mo
• Vacancy reserve (5%): $140/mo
• Operating expenses total: $1,150/mo
• Debt service (P&I): $1,517/mo

$2,800 − $1,150 − $1,517 = $133/month in cash flow — thin, but real, and typical of what fully-financed rentals look like in a normal-rate environment. Self-manage instead of paying the 10% management fee and that jumps to roughly $413/month, which is the honest case for doing your own property management on a small deal.

Why the number is different if you live there

Everything above assumes both units are rented out to tenants. If you house hack — live in one side, rent the other — the cash-flow formula stops telling you the full story, because it only credits the rent you collect. It doesn’t credit you for the rent you’re not paying somewhere else.

Take the same duplex, but you live in one unit and rent the other for $1,400. Income drops to $1,400/month. Expenses shrink too (no property-management fee if you’re on site, a smaller repair reserve, vacancy only on the rented side), say roughly $670/month. Debt service stays $1,517. By the strict cash-flow formula: $1,400 − $670 − $1,517 = −$787/month. Negative.

But you’re not paying rent anywhere else, so that -$787 isn’t a loss the way it would be for a pure investor. The number that actually matters to you is effective housing cost: your full housing payment minus the rent you collect, compared against what you’d pay to rent a comparable place. On this example, full PITI runs about $1,967/month; subtract the $1,400 in rent collected and your real housing cost is about $567/month — usually well under market rent for a 1-bedroom in the same area. Cash flow and effective housing cost are answering two different questions, and mixing them up is the most common math mistake I see in this niche.

What counts as “good” cash flow

For a pure rental (not owner-occupied), $100–$200/month per unit after reserves is a commonly cited floor for a deal worth pursuing, though the right number depends on your market, your goals, and how much cash you put in to get there — the same $133/month means something different on a $60,000 down payment than it would on a $15,000 one. For an owner-occupied house hack, ignore the cash-flow number almost entirely and look at effective housing cost instead; a “negative cash flow” house hack that cuts your housing cost to a few hundred dollars a month is usually a far better deal than it looks on paper.

Run it on a real listing

The math above is illustrative. Your own numbers will depend on the actual rents, taxes, and insurance where you’re looking. Put a real listing into the free house hacking calculator and it’ll run both the pure cash-flow number and the effective-housing-cost number side by side, so you can see which one actually applies to your situation. If you want the full cash-on-cash return on top of cash flow — how that $133/month or that $567/month stacks up against what you put in — that’s covered in Cash-on-Cash Return, Explained.

Weighing paid tools for this math? Our BiggerPockets calculator alternative comparison breaks down what a membership adds and what the free calculator already covers.

Cash flow is one piece of evaluating a deal. The full process is in how to run the numbers on a rental.