Rent minus mortgage is a subset of cash flow, not cash flow. The eight expense categories that close the gap, and why the 50% rule is a screen rather than an underwrite.
Last revised August 8, 2026
The most common rental property spreadsheet in existence does this:
Rent − Mortgage = Cash Flow$1,650 rent, $1,350 payment, $300/month, buy it. Then the first year actually happens and the number is $40. Nothing went wrong. The spreadsheet was just missing most of the cost of owning a rental.
The expenses that turn $300 into $40
Rent minus mortgage is not cash flow, it is a subset of cash flow. Here is what belongs in the model, and roughly where the money goes.
Vacancy. No property is rented 12 months a year forever. Tenants leave, and a turn takes time even when it goes well. Modeling this as a percentage of gross rent is standard; modeling it as zero is how people end up surprised. Whatever number you use, it should be a visible line, not an optimistic omission.
Maintenance and repairs. Ongoing, unglamorous, and non-optional: the water heater, the disposal, the fence, the appliance that dies in month three. This is separate from capital expenditure, and conflating the two understates both.
Capital reserves (CapEx). The roof, the HVAC system, the water heater's eventual full replacement. These do not hit every month, which is exactly why people leave them out — and why a property that "cash-flowed fine for four years" suddenly consumes two years of profit in one October. A reserve line converts a lumpy disaster into a predictable monthly cost.
Property management. Even if you self-manage, model it. If the property only works because you are unpaid labor, you have not bought an asset, you have bought a second job — and you will discover this the first time you want to travel.
Turnover cost. Paint, cleaning, re-keying, listing, screening, and the concession you end up giving to fill it. This scales with tenant churn, not with time, which means a property with high turnover is meaningfully more expensive than an identical one without it.
Taxes and insurance. Usually escrowed, so people assume they are "in the mortgage payment." Sometimes they are. But property taxes reassess, and insurance has been repricing hard in several states. A model that hardcodes today's escrow figure is a model with an expiry date.
Utilities and services you actually pay. Water and sewer are commonly landlord-paid. Trash, lawn, snow, pest, and any HOA dues all belong somewhere.
Financing costs beyond principal and interest. PMI where applicable, and closing costs amortized against your actual return.
Run those honestly against a typical single-family rental and the gap between the naive number and the real one is not 10%. It is routinely the entire margin.
Why "the 50% rule" is a screen, not a model
You will see the heuristic that operating expenses run about half of gross rent, excluding debt service. It is a useful triage tool — it lets you kill obviously bad deals in fifteen seconds. It is not an underwrite, because it averages away every property-specific fact that determines whether this house works: the age of the roof, whether water is metered separately, the local tax rate, the HOA.
Use the rule to decide what deserves a spreadsheet. Use the spreadsheet to decide what deserves an offer. Our rental property cash flow calculator breaks the operating side into twelve categories for exactly this reason: a single blended percentage cannot tell you which cost is the problem, so it cannot tell you what to negotiate.
Anchor the inputs
- Tax rules, depreciation, and deductible expenses: IRS Publication 527 is the primary source for residential rental property. Depreciation in particular changes after-tax returns enough that ignoring it makes your model wrong in both directions.
- Rate assumptions: date-stamp against a published series such as Freddie Mac's PMMS so you know what you assumed and when.
- Market rent: HUD's Fair Market Rents give a defensible floor reference by area, useful as a sanity check against a listing agent's optimism.
- Local landlord-tenant law: notice periods, security deposit limits, and required disclosures vary by state and drive your turnover cost. Nolo's state landlord-tenant laws is a reasonable starting point before you get local counsel.
- Metric definitions: keep cash-on-cash and cap rate computed the same way across every deal — Investopedia's cash-on-cash definition works as a shared reference. Inconsistent metrics make your pipeline uncomparable, which defeats the point of modeling at all.
Three things a usable calculator must do
Separate operating expenses from debt service. NOI should be computable without any financing assumption in it. That is what lets you compare a cash purchase to a leveraged one, and it is what a lender will look for.
Show the break-even rent. Not the return at asking rent — the rent at which the property stops covering itself. That number tells you how much market softness you can absorb, and it is far more actionable than a cash-on-cash percentage.
Compare properties side by side. One property in isolation always looks either great or terrible depending on your mood. Three in a column, same assumptions, ranked, is a decision.
The honest framing
A cash flow model's job is not to produce a number you like. It is to locate the assumption the deal depends on. Sometimes that is rent. More often it is a $9,000 roof you have not looked at, or a tax reassessment that lands next year, or the quiet fact that you priced in zero vacancy on a property in a market with real turnover.
Put every one of those in its own labeled row. The deal that survives that treatment is worth buying. The one that only works when the rows are hidden was never a deal — just a spreadsheet with good manners.