What most cash flow calculations leave out
The usual back-of-envelope is rent minus mortgage. It is wrong in a predictable direction, and the gap is where new landlords lose money:
| Cost | Typical share of rent | Why it is missed |
|---|---|---|
| Maintenance and repairs | 5–10% | Nothing breaks for eighteen months, then the water heater does |
| Vacancy | 5–8% | Feels like zero while the unit is occupied |
| Capital expenditure reserve | 5–10% | Roof, HVAC and windows fail on a decade cycle, not a monthly one |
| Property management | 8–10% | Zero until the year you stop wanting to do it yourself |
| Turnover costs | varies | Paint, cleaning and listing time on every tenant change |
A single month of vacancy on a 12-month tenancy is 8.3% of the year's rent — which on its own is larger than most people's assumed maintenance budget.
The 50% rule as a sanity check
A long-standing rule of thumb among US investors is that operating expenses — everything except the mortgage — average around 50% of gross rent over the life of a property. It is a blunt instrument and it is wrong for any specific year, which is exactly what makes it useful as a check.
If your itemised expenses come out at 20% of rent, you have forgotten something. If they come out at 70%, either the property has a problem or you have double-counted. Run the detailed number in the calculator, then hold it up against the 50% line and see whether you believe the difference.
Cash flow is not the same as profit
Three things routinely confuse the two, and all three matter at tax time:
- Principal repayment is cash out but not an expense — it is you buying equity. It reduces cash flow and does not reduce taxable income.
- Depreciation is an expense but not cash out. It reduces taxable income without touching your bank balance, which is why a property can show a tax loss and positive cash flow in the same year.
- Capital improvements are cash out but are capitalised, not deducted in the year you spend them. A new roof does not show up as a repair.
So a rental can be cash-flow positive and show a loss on paper, or cash-flow negative and still be building wealth through principal repayment and appreciation. Know which question you are asking before you use the answer.
Making the estimate real
An estimate is a hypothesis. The only thing that turns it into a number you can trust is a year of actual figures: what the property really earned, what really broke, how many days it really sat empty.
That is the part almost nobody keeps, and the reason so many landlords cannot tell you which of their properties is the good one. Rentmark logs income from every rent payment and expenses by category against each property, then computes net position and yield per property — so next year's estimate starts from your own history instead of a rule of thumb.