Cash flow equals rental income minus all expenses: mortgage payment, property taxes, insurance, maintenance, vacancy allowance, and property management. Positive cash flow is essential. Target $200 or more per month after all expenses. Never count appreciation as cash flow.
Calculation Method
Income minus PITI minus maintenance minus vacancy minus management equals cash flow.
Expense Categories
Mortgage, taxes, insurance, maintenance (10% of rent), vacancy (5-8%), management (8-10%).
Example Analysis
$1,800 rent - $1,200 PITI - $180 maintenance - $90 vacancy - $144 management = $186/month.
Target Returns
$200+/month per property minimum. Cash-on-cash return of 8%+ is a common target.
Common Mistakes
Forgetting vacancy, underestimating maintenance, not accounting for capital expenditures.