How to Calculate Cash Flow on a Rental Property

A rental property only makes you money if the rent covers everything it costs to own — and then some. That leftover is your cash flow, and it's the single most important number to get right before you buy. This guide walks through the exact formula, a worked example with round numbers, and the expenses new investors most often forget.

Key takeaways

• Cash flow = rental income − all expenses (including mortgage, taxes, insurance and a vacancy buffer).
• Positive cash flow means the property pays its own way; negative means you fund the shortfall.
• The expenses that sink returns are the ones beginners skip: vacancy, maintenance and management.
• Run the numbers at a higher interest rate than today's to build a margin of safety.
• Cash flow and cap rate measure different things — use both before you make an offer.

What rental cash flow actually means

Cash flow is the money left in your pocket each month after a rental property pays every one of its bills. The formula is simple: total rental income minus total expenses. If the answer is positive, the property funds itself and pays you. If it's negative, you're topping it up out of your own income every month.

Cash flow is different from appreciation (the property going up in value) and different from the cap rate, which measures return regardless of how you financed the purchase. Serious investors lead with cash flow because it's the number that keeps you solvent while you wait for appreciation that may or may not arrive.

Add up every expense (not just the mortgage)

Most beginners count the mortgage and call it a day. The real expense list is longer, and the items people forget are exactly the ones that turn a 'positive' deal negative.

• Mortgage payment — principal and interest on your loan.
• Property tax — set by the municipality; rates vary widely across Ontario.
• Insurance — landlord insurance, not standard home insurance.
• Condo or maintenance fees — if it's a condo, these can be substantial.
• Repairs and maintenance — budget a percentage of rent even in quiet months.
• Property management — count it even if you self-manage today; your time has value.
• Vacancy — set aside for months between tenants. Empty units still cost money.

Don't zero out vacancy and maintenance

A deal that only works because you assumed zero vacancy and zero repairs isn't a deal — it's a hope. Always pencil in a buffer for both, even on a brand-new build.

A worked example (with round numbers)

Here's a hypothetical condo bought as a rental, using simple round figures to show the mechanics. These are illustrative numbers, not a forecast — your real figures depend on the property, the rate, and the city.

In this example, $2,500 of rent against $2,400 of expenses leaves $100 of monthly cash flow — about $1,200 a year. That's a thin but positive margin. Drop the rent by a month of vacancy or hit one big repair and the year can swing negative, which is exactly why the buffers matter.

Reading the result

Once you have a number, judge it honestly against the risk you're taking on.

Negative cash flow isn't automatically a dealbreaker — some investors accept it in exchange for strong expected appreciation — but it means the property is a liability every month until that bet pays off. We never predict prices, so treat appreciation as a bonus, not a plan. For the bigger picture, see how to invest in real estate in Canada.

Pressure-test before you buy

Today's rate won't last forever, and at renewal a higher rate can erase a slim margin. Re-run your cash flow at a rate well above today's before you commit. At federally regulated lenders you'll already need to qualify at the greater of your contract rate + 2% or 5.25% — model your cash flow at that higher number too. See the mortgage stress test and weigh your loan options in fixed vs variable mortgage rates.

Put cashback toward your next deal

Eligible HOMEH buyers receive the industry's highest Cashback Rebate — capital that can fund a bigger reserve or a larger down payment, both of which strengthen your cash flow. Estimate yours with the cashback calculator, then browse income listings.