Before you go into rental property investing, you need to know how your potential assets will make money for you. A vague idea about collecting rent payments isn’t enough. You must have exact figures at your fingertips to see whether it is a profitable venture or not. Getting all the numbers will prevent unwanted surprises, enabling you to make informed decisions. In this article, we show you how to calculate rental property cash flow.

Principal and Interest
Let’s do the basic computations. In this example, let’s say that you are looking at a property that is worth $300,000. That’s a lot of money, so you try to finance it through a 30-year mortgage with 5% interest. Most lenders ask for a 20% down payment, which is $60,000. They will cover the remaining 80% or $240,000. If you start on July 2022, then you will need to make 360 monthly payments of $1,288.27 until June 2052 to pay off the principal and interest.

Taxes, Insurance, Advertising, Repairs, and More
However, it doesn’t end there. You need to consider other expenses that come with property ownership. Let’s say that your combined annual payments for taxes and insurance is $2,400. That means you will have to pay an additional $200 each month, increasing the above figure to $1,488.27. These are fixed values that make them predictable. Other expenses may go up and down each year.

For instance, things will break down from time to time, and you need to fix them to keep your tenants happy. Let’s say that annual maintenance and repairs will cost another $3,600. That’s an additional $300 in monthly expenses. To find tenants for vacant units, you will have to spend on advertising. If you use low-cost methods, then you might keep this to $240 per year or just $20 a month. Now the total expenses have risen to $1,808.27 monthly or $21,699.24 annually.

Gross Rental Income
To cover the payments, you need to earn more than $1,808.27 in monthly rent. Let’s say that the property is a single-family residential rental home. If you collect $2,500 in rent each month (assuming full occupancy). That’s $30,000 each year. If we subtract your annual expenses, then you are getting a profit of $8,300.76. However, you must account for periods of vacancy which may eat up around 10% of the profits. Now you are at $7,470.68. That’s a nice positive cashflow that gives you room to spend more if you need to.

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