Your Guide to Cash Flow on a Rental Property

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Purchasing a rental property and becoming a landlord is a dream for many and can be an excellent investment, but you’ll need to do your research before you begin. Determining your cash flow is one essential step because it shows you how much money you stand to make on your investment every month.

Cash flow is the difference between the rent payments you receive and the expenses you’ll pay on your investment property. A positive cash flow means you’re earning monthly income on the investment, while properties with a negative cash flow cost you money.

Understanding how cash flow works can aid you in deciding if a particular property is right for you. This guide will help you calculate rental property cash flow and provide information on factors that could influence your numbers.

How to Calculate Rental Property Cash Flow

Looking at investment properties to buy is an exciting time, but you don’t want to overlook the cash flow for rental property equation during your search. The math is actually pretty simple, although you’ll want to be thorough as you gather information on the property. Your cash flow on rental property calculation will have you take the following steps:

Add Your Revenue

The first step is figuring out how much revenue you’ll have coming in through your rental property. Most investment homes are single units, so your rental income is simply the amount you’ll charge your tenants, and you can come up with a number using neighborhood comps. You could have pet fees, laundry charges, or other extra sources of revenue to include in the calculation, too.

Determine Your Expenses

Your next job is figuring out all your expenses when operating the property. These costs include mortgage payments, maintenance expenses, interest payments, property tax, income tax, and anything else you’ll be responsible for paying while you own the house. Calculating your annual expenses and dividing that number by 12 shows what you can expect in monthly expenditures.

Finalize the Calculation

The last step is subtracting your expenses from your revenue. You can do this cash flow rental properties calculation both monthly and annually to see how valuable your investment will be in terms of cash flow. Ensure you’re comfortable with the numbers before buying the property and remember that negative cash flow will undermine the profitability of the investment as a whole.

You’ll want to calculate the cash flow for rental property numbers before buying any real estate to make the most of your investment. Remember that the amount you can charge for rent varies by location, and variables can affect what renters are willing to pay in your area.

Six Factors That Could Influence Your Cash Flow For Rental Property

Your cash flow calculations are a vital tool, but they aren’t a perfect science. Various factors could influence your expenses over time, and you’ll need to be aware of what could happen so you have enough money put away to cover unforeseen circumstances. Variables that could alter your cash flow include the following:

1. Essential Utilities

You’ll need to determine which utilities you’ll pay and which will be in your tenant’s hands. Landlords typically pay water, trash removal, and sewer expenses, while tenants usually pay cable, heating, and power bills, but it’s often negotiable when writing a lease. You could have to make concessions to get the ideal tenant, and remember that utility expenses can fluctuate from year to year or even month to month.

2. Maintenance and Repair Costs

Repairs and maintenance are always necessary when you own a rental property, even if you have ideal tenants. Minor maintenance expenses won’t set you back too much, but replacing a furnace, water heater, or roof will significantly hinder your cash flow numbers. 

3. Late Rent

Having a tenant make late rent payments once in a while usually isn’t a huge deal, but it can quickly escalate if it becomes habitual. These late payments can reduce your cash flow, especially if they add up and become a recurring problem. Vetting your tenants before they move in can reduce the issues you’ll experience, but you should be aware of the possibility before you invest.

4. Lengthy Vacancies

A property that sits empty for months will significantly reduce your cash flow. Locating and vetting the ideal tenant takes time and effort, but you don’t want your rental home sitting vacant for too long because recouping your losses will become extremely challenging.

5. Seasonal Expenses

Some properties have seasonal expenses you’ll need to factor in when calculating your cash flow. Landscaping and snow removal fees could bring higher expenditures in the summer or winter, and you could have higher water bills in the warmer months as your tenant waters the lawn. Calculating your annual expenses and dividing them by 12 can help you factor in all the seasonal costs you could encounter.

6. Property Management Fees

Many landlords now trust property managers to handle much of the day-to-day work around their rental properties. A property manager can also seek and vet tenants and collect rent, minimizing the effect vacancies and late payments have on your cash flow. Property management firms typically charge a set monthly rate, but this expense can provide cash flow certainty because you won’t have to worry as much about problem tenants.

Being a landlord is full of expenses, but rental properties also provide a monthly income source that can cover them. Understanding where additional costs and variables could pop up ensures you aren’t surprised in the future.

Property Management Assistance

Rental properties have numerous variables, but a property manager can eliminate the effect most of them have on your bottom line. You’ll pay a set fee and have much of the day-to-day taken care of for you, reducing stress and providing greater cost certainty.

Nomadic Real Estate offers property management services in the Greater D.C. area. Our team will ensure you have vetted tenants living at your rental property and will handle maintenance requests, freeing up your time and improving your cash flow. Contact Nomadic Real Estate for more cash flow on rental property information.

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Enhanced Reporting

Your portal includes a selection of extremely useful reports. Reports are available in the “Reports” section, and are distinct from the financial statements. Unlike financial statements which are static records, Reports are dynamic real-time records that will update with current data every time you view them. 

Scroll down to learn more about Reports:

Navigate to the "Reports" module in your portal:

Owner Portal Reports
  • Keep in mind, these reports are dynamic records. They will refresh to display current information every time you view them. 

Enhanced Rent Roll Report:

Enhanced Rent Roll Report
  • The Enhanced Rent Roll Report will show the rent amount, last payment date, move-in date, lease expiration date, and security deposit amount for each of your tenants. 
  • It will also show a portfolio summary with occupancy percentage, vacancy loss, and more!

Unit Comparison Report:

Unit Comparison Report
  • If you own multiple units (or buildings) with Nomadic, you’ll get access to the Unit Comparison Report. 
  • This report enables you to quickly compare financial performance between your units at a glance without toggling between individual reports. 

Income Statement Month-Over-Month:

Income Statement by Month Report
  • The Income Statement Detail – Monthly Report serves as a month-over-month record of portfolio performance. You’ll see itemized income and expense categories and can track monthly. This report will update with fresh data every time you view it. 

Financial Statements

Financial statements will be published to your portal on a monthly basis. The statements are found in your Documents library, and provide a historical record of all financial performance. The statements serve as a snapshot of financial performance over a given period, and are static documents (unlike Reports, the statements do not update/change in real-time). 

Scroll down for more info about the Financial Statements in your Documents library:

The Documents area contains monthly financial statements:

Owner Portal Documents
  • The statements in the Documents are are static documents. They are posted to the portal once a month to serve as a historical record of financial performance. 

Download a statement to see month and YTD financials:

Owner Portal Property Statement

You'll also find a month-over-month operating statement:

Month over Month Statement

Portal Communication Tool

You can use your owner portal to communicate with our team. Any messages you send through the portal will go straight to your Account Manager. When we reply, you’ll get an email notification and you’ll also see the message in your portal next time you log in. 

Here’s an overview of using the communication platform:

Click "Communications" and navigate to "Conversations":

Commincation Dashboard Screenshot
  • The communications module will contain a record of all messages that you create through the portal. 

Click the "New Message" button and send your message:

Owner Portal New Message Screenshot

Responses will show up in the conversation ticket:

Portal Conversation Response Screenshot
  • You’ll get an email notification whenever you get a response, and you’ll also see the message in your portal next time you log in. 

You can reply in-line using the comment box:

Owner Portal Comment

Each conversation will be logged in its entirety:

Portal Conversation Snapshot

Understanding the Ledger

Your portal includes a ledger with all transactions. The ledger is populated with data in real-time as transactions flow through our accounting software. Much of this information is also available in the Reports area, as well as the Statements in your Documents library, but the ledger is the most comprehensive resource for diving into the details. 

Please scroll through the sections below to get a better understanding of how to interpret the ledger. 

By default, transactions are sorted chronologically:

Owner Ledger Dates
  • The date reflected in the lefthand column is the actual transaction date, not the “bill date”. This is the date the transaction was actually processed. 

If you have multiple properties with Nomadic, you'll see the address for each transaction in the "Location" column:

Ledger Property Column
  • You can filter the ledger to look at just one property, all properties, or specific sets of properties. 
  • If you only have one property with us, you’ll just see the ledger for that property. 

The Description column displays the transaction type:

Owner Ledger Description Column
  • BILL: this is an expense transaction, such as for repair costs or management fees.
  • CHARGE: this is a transaction  billed to the tenant, most typically a rent payment. 
  • NACHA EXPORT: this is a credit we processed to your distribution account. This type of transaction is how you get paid! 

The Amount column shows the dollar value of each transaction:

Owner Ledger Amount Column
  • Positive Amounts: if an amount is positive, it reflects a transaction that is payable to you. Typically, this will be a rent payment that we collected from your tenants. On occasion, a positive number could also signify a journal entry or credit adjustment. 
  • Negative Amounts:  if an amount is negative, this is a transaction that is either payable to Nomadic or is an amount that has already been paid to you. Typically this will be for repair costs or management/leasing fees. Owner draws (net distributions into your checking/savings account) also reflect as negative amounts, since they have already been paid to you. 

The Account Balance column shows a sum of positive/negative transactions at a given point in time:

Owner Ledger Account Balance Column
  • Account Balance should always equal zero after a net distribution has been processed. When the balance is zero, this means that all expenses have been paid and you’ve received the remainder as net operating income, leaving a balance of zero (meaning: no one is due any money, as all funds have been distributed appropriately). 

Navigating the Propertyware Owner Portal

Your portal includes some extremely useful features that help you understand your property’s financial performance at a new level, with real-time transparency into every transaction.

Scroll through the snapshots below for an overview of portal navigation! If you need more help or have specific questions about using the portal, you can reach out to your Account Manager any time for a screen share. 

You can filter all info by date range or property:

PW Portal Filters

View a snapshot of income and expenses on your dashboard:

PW Owner Dashboard View

See every transaction in real-time on your ledger:

Owner Portal Ledger View

Statements and forms will be posted to your documents library:

Owner Portal Document Library

View a suite of real-time financial reports:

Portal Reports View

See a running list of all bills, and drill down for more detail:

Owner Portal Bills View

Under Bill Details, you'll find dates/descriptions/amounts and more:

Portal Bill Details

You can also communicate with your Account Manager through the portal:

Owner Portal Communication Tools

How do net distributions work?

Net distributions keep your accounting clean and simple. Each month we’ll collect rent from the tenants, deduct any repair expenses for the previous month and any management/leasing fees for the current month, and credit the remaining net operating income to your account. 

Net Distribution

You’ll receive a statement via email each time a net distribution is processed, and can view all transaction details in your Propertyware owner portal.