Calculator for Savers

Does This Rental Property Actually Make Money? How to Use This Calculator

Most people analyze a rental property by asking: "Is the rent more than the mortgage?" That question misses most of the cost. The real question is whether the property generates positive cash flow — money left over after every expense has been paid: property taxes, insurance, maintenance, vacancies, management fees, and yes, the mortgage. This calculator answers that question precisely, then goes further to give you three different measures of return so you can decide if it makes financial sense compared to your other options.

What This Calculator Does

This tool takes your purchase price, financing terms, expected rent, and realistic expenses to calculate:

• Monthly cash flow — what you actually pocket (or subsidize) each month
• Cap rate — the property's income yield if you had paid all cash, a standard metric used by investors to compare properties
• Cash-on-cash return — your annual cash return as a percentage of the actual cash you invested (down payment + closing costs + repairs)
• Total ROI over your holding period — combining cash flow, equity paydown, and property appreciation
• Break-even occupancy — the minimum percentage of the year the property needs to be rented to cover all costs

The year-by-year table shows how rent growth, appreciation, and mortgage paydown compound over your holding period.

When Should You Use This?

• You're evaluating a specific property and want to know if the numbers work before making an offer
• You're comparing two properties in different neighborhoods and need an apples-to-apples return comparison
• You already own a rental and want to model what happens if you raise rent, reduce vacancy, or refinance
• You're deciding whether to hire a property manager and want to see how that cost affects your return
• You want to compare real estate investing to putting the same down payment into an index fund

How to Read Your Results

Monthly Cash Flow

This is your net income after every expense — including mortgage principal and interest. A positive number means the property is self-funding and generating income. A negative number means you're paying out of pocket each month. Some investors accept negative cash flow as an "appreciation play" in high-growth markets, but that's a speculative bet, not an investment. As a general rule, experienced investors target at least $100–$200/month positive cash flow per unit as a margin of safety.

Cap Rate (Capitalization Rate)

Cap rate = Net Operating Income ÷ Purchase Price. It tells you the property's income yield as if you owned it free and clear — no mortgage. This is the standard metric investors use to compare properties across markets. A higher cap rate means more income relative to price. In most US markets, a "good" cap rate for single-family homes is around 5–8%. Cap rates below 4% typically mean you're paying a premium for appreciation potential, not income. Cap rates above 10% often indicate higher risk (lower-quality area, older property, or high vacancy).

Cash-on-Cash Return

Cash-on-cash (CoC) return = Annual cash flow ÷ Total cash invested. "Total cash invested" includes your down payment, closing costs, and upfront repairs — everything that came out of your pocket at purchase. This is the number that matters most to investors who used financing, because it tells you the return on the actual dollars you committed. A CoC return of 8–12% is generally considered strong. Below 4% and many investors would rather put that cash in dividend stocks or bonds with zero management headaches.

Total ROI

This is the full picture: cash flow accumulated over your holding period, plus equity built through mortgage paydown, plus appreciation on the property value. It's expressed as a total percentage return on your original cash investment. Real estate's power comes from leverage — a 3.5% appreciation on a $300,000 property is $10,500/year in wealth gain on what might be a $70,000 cash investment. The tradeoff is illiquidity and management burden.

A Real-World Example

The Three Most Common Mistakes New Landlords Make

1. Underestimating the vacancy rate

First-time landlords often enter 0% vacancy, or "my property is in a great area, it'll always be rented." In reality, even excellent properties face vacancy when tenants move out, during tenant screening, and during turns (cleaning, repairs between tenants). A realistic vacancy rate is 8–10% for most markets, which represents roughly one month vacant per year. Underestimating this by 5% on a $2,000/month rental costs $1,200/year in false income projection.

2. Using a homeowner's maintenance budget for a rental

Many investors plug in $50–$100/month for maintenance because that's what they spend on their own home. Rentals are different: tenants don't treat properties the same as owners, appliances get used harder, and you must respond to maintenance requests quickly (often with licensed contractors at retail rates). The industry standard is 1% of property value per year for maintenance plus a separate 5% CapEx reserve for big-ticket items (roof, HVAC, water heater, flooring). On a $300,000 property, that's $3,000 + $1,320 = $4,320/year — not $600.

3. Ignoring management costs even if you self-manage

Many investors enter 0% for property management because they plan to manage it themselves. This creates an invisible cost: your time. Landlord responsibilities include marketing vacancies, tenant screening, lease drafting, collecting rent, handling repairs, conducting inspections, and potentially eviction proceedings. A professional property manager charges 8–12% of gross rent for a reason — that's the fair market rate for that labor. Even if you self-manage, modeling those costs shows you the real break-even point and protects you if your situation changes and you need to hire one.

What the Numbers Don't Tell You

This calculator is a model — a useful one, but still a model. Several important factors fall outside what any calculator can measure:

• Tenant quality: A difficult tenant can turn a cash-flowing property into a money pit through damage, late payments, and legal costs. Good tenant screening is worth more than a few percentage points of cap rate.
• Local rent control laws: Some cities cap how much you can raise rent annually. If your projections assume 3–4% rent growth but local law caps it at 1.5%, your long-term return looks very different.
• Depreciation tax benefits: The IRS allows you to depreciate residential rental property over 27.5 years, creating a paper loss that offsets rental income. This is one of real estate's most powerful tax advantages, but it depends on your income level and whether you qualify as a real estate professional. Consult a CPA.
• Capital gains on sale: When you sell, you'll owe taxes on gains above your adjusted cost basis. 1031 exchanges can defer these taxes indefinitely, but require careful planning. The net proceeds after tax can differ significantly from the gross profit.
• Your time: Even a smooth rental takes 5–10 hours per month on average. That time has a value. If your cash-on-cash return is 3% but you're working 8 hours a month, your effective hourly "wage" for this investment may be quite low.

Cap Rate vs. Cash-on-Cash: Which Number Matters More?

Both matter — they answer different questions. Cap rate is about the property. It tells you the intrinsic income yield of the asset regardless of how it's financed. Investors use it to compare properties and markets. A property with a 7% cap rate is a better income asset than one with a 4% cap rate in the same market, all else equal.

Cash-on-cash return is about your investment. It tells you what return your actual dollars are generating, which depends on your financing terms. The same property with a 20% down payment at 6% interest might generate 9% CoC, while 25% down at 7.5% might generate only 4% CoC. Same property, very different returns on your capital.

When evaluating a deal, look at cap rate first to assess the property's underlying quality, then cash-on-cash to understand whether your specific financing makes it worthwhile.

Related Calculators

Use these tools together for a complete picture of your investment decision:

• Mortgage Calculator — Model different loan scenarios and see the exact amortization schedule for your rental property loan
• Rent vs. Buy Calculator — If you're considering the property as your own residence first, compare the financial outcomes of buying vs. continuing to rent
• Debt vs. Invest Calculator — Compare using your down payment to buy real estate versus investing it in the stock market, with a side-by-side return comparison