Cash Flow

· 2 min read
Cash flow is the money left in your pocket after every expense tied to a rental property gets paid — and it’s the single number…

Cash flow is the money left in your pocket after every expense tied to a rental property gets paid — and it’s the single number that separates real investors from people who just own headaches.

Here’s the basic math. Take your monthly rental income and subtract everything: mortgage payment, property taxes, insurance, maintenance, vacancy reserve, and property management fees. What’s left is your cash flow. Positive means you’re making money. Negative means you’re subsidizing a tenant’s housing.

How to Calculate Cash Flow

Start with gross rental income. If your duplex pulls in $2,400/month total, that’s your starting point. Then stack up your expenses:

  • Mortgage (P&I): $1,200/month
  • Property taxes: $250/month
  • Insurance: $100/month
  • Maintenance reserve (5%): $120/month
  • Vacancy reserve (8%): $192/month
  • Property management (10%): $240/month

Total expenses: $2,102. That leaves $298/month in positive cash flow. Not glamorous, but it’s $3,576/year that shows up if you’re sleeping or on vacation.

What Counts as Good Cash Flow?

Most experienced investors target $100-$200 per unit per month as a minimum. A single-family rental netting $150/month? Acceptable. A four-plex generating $800/month total? Now we’re talking. The “1% rule” — where monthly rent equals 1% of purchase price — is a quick screening tool, but it doesn’t replace running real numbers.

Markets matter enormously. A $500,000 house in Austin might barely break even on cash flow but appreciate 6% annually. A $120,000 duplex in Cleveland could throw off $400/month but sit flat on value for years. Neither strategy is wrong — they’re just different bets.

Cash Flow Killers to Watch

Vacancy is the obvious one. Every month a unit sits empty, you’re covering the full mortgage yourself. Budget 5-8% for vacancy in stable markets, 10%+ in areas with high tenant turnover.

Deferred maintenance is sneakier. Skip the $200 gutter cleaning and you’ll get a $4,000 foundation repair bill in three years. Capital expenditures — roofs, HVAC systems, water heaters — need their own reserve fund, typically 5-10% of gross rents.

Property taxes can spike after purchase too. That house assessed at $150,000 gets reassessed at your $220,000 purchase price, and suddenly your tax bill jumps $1,400/year.

Cash Flow vs. Appreciation

This is the great debate in real estate investing. Cash flow investors want money now. Appreciation investors bet on equity growth over time. The smartest approach? Find properties that do both, even if neither number is spectacular on its own.

A property cash-flowing $200/month that also appreciates 3% annually on a $200,000 value is generating $8,400/year in total returns. That’s a 10.5% return on a $80,000 down payment — and it beats most stock market years.

Run your own numbers with our mortgage calculator to see how different loan terms affect cash flow. For a deeper look at buying investment properties, check out our home buying guide or browse the full real estate glossary.