Rental investing is a small business: rent is revenue, everything else is expense. Positive cash flow after debt service still might fail if you ignore vacancy, capex reserves, and tax on rental income.
Monthly cash flow formula
Cash flow ≈ gross rent − (mortgage + property tax + insurance + HOA + maintenance + vacancy allowance + property management). Example: $2,400 rent − $1,850 expenses = $550/month before income tax and big repairs.
Vacancy and maintenance reserves
Budget 5–10% vacancy even in tight markets.
Set aside 1% of property value per year for maintenance (rule of thumb).
Cap rate and cash-on-cash differ — this tool focuses on monthly operating cash flow.
Compare to your cost of capital
If cash-on-cash return is below what you'd expect from a diversified portfolio after the work and risk, the deal may be a pass. Model conservative rent and higher expenses first.