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Rental Property Cash Flow: A Simple Worksheet

Line one: realistic gross rent

Use what comparable units in the same building or street actually rent for, not the asking price in the listing and not the optimistic figure in a projection. If the unit has been sitting vacant, that is information. Then shave a little off for vacancy: even a well-managed property has gaps between tenants, and a simple allowance of one month a year is a reasonable starting point for a first pass.

Line two: operating costs, in full

1. Property taxes, using the assessed figure that will apply after the sale rather than the seller's current bill.
2. Insurance, ideally a real quote rather than a national average.
3. Maintenance and repairs, set as a monthly reserve even in months when nothing breaks.
4. Management, including your own time if you plan to do it yourself. Free labour is only free until you value it.
5. Utilities or association fees that the owner pays, and any routine services such as lawn care or cleaning of common areas.

These are the lines that get skipped. Reserve accounts feel like pessimism when the roof is new, and feel like genius when it is not.

Line three: financing

Use the actual payment, including any mortgage insurance, and note whether the rate is fixed or adjustable. An adjustable rate changes the entire worksheet later, so a deal that works only at today's rate is a bet on interest rates as much as a bet on the property.

A worked example

Say a unit rents for roughly 1,800 a month and you allow one month of vacancy a year, giving an effective 1,650. Operating costs come to about 550: taxes 190, insurance 60, maintenance reserve 180, management 90, and small recurring items 30. Financing is 950. That leaves 150 a month, or 1,800 a year, before tax considerations. On a cash investment of 60,000 for a down payment and closing costs, that is a modest return for the effort and the illiquidity.

Now change one assumption. If the maintenance reserve was too thin and the real figure is nearer 300, the surplus falls to 30 a month. If the unit sits empty for two months instead of one, it disappears entirely. Small errors in the boring lines are enough to turn a positive deal into a neutral or negative one, which is why the worksheet matters more than the headline yield.

Line four: capital spending

A roof, a heating system, and appliances do not appear in monthly operating costs, but they arrive on a schedule measured in years. Set aside a monthly amount for them anyway. Ignoring capital expenditure is the reason some landlords report years of positive cash flow and then describe one terrible year as bad luck. It was not luck; it was an expense that was never given a line.

Line five: the tax effect, roughly

Rental income is generally taxable, but depreciation and deductible expenses can substantially reduce the taxable portion, sometimes to zero in the early years while the property still produces cash. That is a genuine advantage, not a loophole to be embarrassed about. It is also a reason to keep clean records from the first month, and a reason to ask someone qualified about how depreciation is recaptured when you eventually sell. Do the worksheet on pre-tax cash first; treat tax benefits as a bonus, not as the thing that makes a bad deal good.

Line six: your exit

Write down the selling costs, the likely holding period, and the assumptions about the sale price. If the entire case rests on the property appreciating briskly, you are speculating on price rather than buying an income stream. Both are defensible, but they are different bets and they should not be mixed together in the same column of a spreadsheet.

The value of this exercise is not precision. It is that it forces every recurring cost into the light before you sign. A property that still produces a reasonable surplus after vacancy, reserves, capital spending, and honest management costs is a business. One that only works when everything goes right is a part-time job with an uncertain wage.