Cash flow is the number that decides whether a rental feeds you or bleeds you every month, and it's the one investors most often get wrong — not because the math is hard, but because they leave expenses out. The formula is just: monthly rent minus every monthly cost. The discipline is being honest about what "every cost" means.
Start with a sourced rent, not a hopeful one
Everything downstream scales off rent, so anchor on a real figure. Zillow's Rent Zestimate is a reasonable starting point when the listing has one; otherwise look at what comparable units actually lease for. A $200/month optimism in rent is enough to turn a losing deal into a paper winner.
Subtract the mortgage
Principal and interest on your actual financing — your down payment, rate, and term. This is usually the largest single line, and it's the one that changes most with how you structure the deal.
Subtract the costs people forget
- Property tax — by state and county, not a national average. In high-tax states this line alone can swing cash flow by hundreds a month.
- Insurance — also wildly local; coastal and catastrophe-exposed markets cost far more than a flat assumption implies.
- Vacancy reserve — budget for the property being empty part of the year (a common screen uses ~8%). Rent you don't collect is still a cost.
- Maintenance reserve — things break. A common rule of thumb is ~10% of rent set aside.
- Property management — even if you self-manage today, price in ~10% so the deal still works the day you stop.
The two lines that quietly sink deals are local taxes and reserves. A property that cash-flows on a 1.2% national tax assumption can lose money every month once you use the real local rate. Screen with honest, local inputs or your verdict is fiction in exactly the markets you care about.
What's left is your cash flow
Rent minus mortgage minus all of the above is your estimated monthly cash flow. Positive means the property pays you to hold it; negative means you're paying for the privilege and betting on appreciation. Neither is automatically wrong — but you should know which one you're signing up for before you offer, not after.
Want this computed for you on any deal? Try the free rental property calculator at /tools/rental-property-calculator — it bakes in real per-state taxes and insurance and shows its work. The Mortar Chrome extension does the same automatically on any Zillow listing. Estimates only; verify before you offer.