The cash flow formula
Monthly cash flow = rent minus operating expenses minus mortgage payment. Operating expenses include property tax, insurance, repairs and maintenance (often 5% to 10% of rent), property management, utilities you pay and a vacancy allowance (often 3% to 5%).
The four key metrics
| Metric | Formula | What it tells you |
|---|---|---|
| NOI | Rent minus operating expenses (before mortgage) | What the property earns |
| Cap rate | NOI ÷ purchase price | Return if bought with cash; compare properties |
| Cash-on-cash | Annual cash flow ÷ cash invested | Return on your own money |
| DSCR | NOI ÷ annual mortgage payments | Lender comfort; usually 1.1 or more |
Example
A duplex rents for $4,200 a month ($50,400 a year). Operating expenses are $17,000, so NOI is $33,400. At a $750,000 price the cap rate is 4.5%. If the mortgage payments total $29,000 a year, DSCR is 1.15 and annual cash flow is $4,400.
Run your own numbers
Our rental ROI calculator does the math and emails you the report. Pair it with the mortgage payment calculator. Ready to finance? Call or text (289) 513-3328 or read about rental property mortgages.