What Is a Good Cash Flow for a Rental Property?

Ask this online and you will get a number back within seconds. $100 a month per unit. $200. One percent of purchase price. Someone will say $500 and someone else will say anything positive is fine.

All of those answers share a problem: they describe a figure without describing what it has to survive.

A property clearing $180 a month with a fixed rate for four more years, a long-term tenant and no service charge is in a completely different position from one clearing $180 with the fix expiring in March. Same number. Not the same property.

So here is the useful version of the answer.

First, make sure you are measuring cash flow at all

A surprising number of landlords quoting a cash flow figure are quoting rent minus mortgage. That is not cash flow. That is two of the numbers.

Real monthly cash flow is:

Rent received − voids − management − maintenance − insurance − service charge − ground rent − other annual costs − the full mortgage payment

Two of those get left out most often.

Voids. No property is occupied every month forever. A 5% allowance — roughly two and a half weeks a year — is a common minimum. Assuming zero flatters every property you will ever look at.

Maintenance. Nothing breaks for eighteen months and then the boiler goes. Setting aside 8% of rent monthly is not pessimism; it is the same money, recognised in the month it was actually earned rather than the month it was spent.

Leave those two out and a property showing $250 a month is really showing closer to $60.

The three tests that matter more than the number

Test 1 — Does it survive a rate rise?

Take your current cash flow and recalculate it with the interest rate two points higher. That is roughly what a fix expiring into a worse market does to you.

Worked through: a property at 180,000 with a 135,000 mortgage at 5.5% over 25 years pays 829.02 a month and clears about 196.58. Move the rate to 7% and the payment becomes 954.15 — cash flow drops to about 71.45.

The yield barely moved. The cash flow fell by nearly two thirds.

If a two-point rise takes you negative, your cash flow is not a cushion. It is a countdown to your fix expiring.

Test 2 — Does one boiler wipe out the year?

Multiply your monthly cash flow by twelve. Now compare it with the cost of a boiler replacement, a rewire, or two months of void.

At 71.45 a month, the whole year produces about 857. One boiler is the entire year and then some. That property is not generating income; it is generating a slowly accumulating repair fund that occasionally goes negative.

At 196.58 a month you have about 2,359 a year — enough to absorb one significant repair and still be ahead.

Test 3 — What is your break-even rent?

This is the number almost nobody calculates, and it is the most useful one on the page.

Break-even rent is the monthly figure below which the property costs you money. In the example above it is about 1,147.65 against actual rent of 1,400 — roughly 18% of headroom.

That percentage is the real answer to “is this good cash flow?”. It tells you how far rents in your area could fall, or how much of a rate rise you could absorb, before the property turns.

Our free calculator works out all three of these as you type — change the interest rate and watch the cash flow move while the yield sits still.

So what is a reasonable target?

With the caveats above genuinely applied rather than nodded at:

Two important qualifications.

This is per property, not per portfolio. A portfolio averaging 150 a month across five properties can easily contain one losing 200 while four carry it. The average hides exactly the property you most need to look at.

Higher cash flow usually costs you something. It comes from a bigger deposit — which lowers your cash-on-cash return — or from a higher-yielding area, which typically means longer voids and more management. Cash flow is not free.

Cash flow is not the same as return

A property bought outright with no mortgage will show excellent cash flow. That does not make it a good investment — it makes it an unleveraged one.

To judge the investment you need cash-on-cash return: annual cash flow divided by the money you actually put in, deposit plus purchase costs. In the running example that is 2,359 ÷ 52,500, or about 4.5%.

That is the figure to compare against other things you could have done with the same money. Cash flow tells you whether you can afford to hold the property. Cash-on-cash tells you whether it was worth buying.

And neither is rental yield, which ignores your financing entirely.

Frequently asked questions

Is negative cash flow always bad?

No, but it must be deliberate. If you are knowingly funding a shortfall to hold an appreciating asset in a strong area, that is a strategy. If you discovered it after buying, that is a mistake wearing a strategy’s clothes.

Should I include my own labour?

If you self-manage, you are saving the management fee and paying yourself in time. Include the fee in your figures anyway. Otherwise you cannot compare your property with a managed one, and you will not notice when the time cost outgrows the saving.

How does the mortgage type change this?

Interest-only produces markedly better cash flow than repayment, because none of the payment is buying down the loan. That is not extra income — it is deferred. Compare like with like, and remember the capital is still owed.

How often should I recalculate?

Annually at minimum, and immediately whenever the rate changes or rent is reviewed. A fix expiring can turn a working property into a loss-making one in a single month.

Work it out for your property

The free Rental Yield & Cash Flow Calculator gives you all three tests in about thirty seconds — monthly cash flow, cash-on-cash return and break-even rent, updating as you type.

Across more than one property, the Rental Property Tracker ranks every property by real cash flow so the weak one has nowhere to hide, and keeps the month-by-month record that makes the annual figure trustworthy rather than remembered. $27 once.

General information for landlords and property investors, not financial or tax advice. Figures are illustrative and use common rules of thumb for voids, management and maintenance — substitute your own. Speak to a qualified adviser before making a borrowing or purchase decision.