BiggerPockets Real Estate Podcast · BiggerPockets

How to Calculate Cash Flow on a Rental Property

·34 min·3 clips

Dave and Ashley clash on vacancy percentages for a 135-year-old house, showing how to factor in renovation downtime.

Cash flow starts with all inputs. Dave frames the calculation as the basic test for whether a rental is worth buying and whether it is doing its job after purchase. Subtracting the mortgage from the rent does not cut it. He points to online cash flow claims that look unusually strong and says a lot of those numbers probably skip the boring costs that show up later. Ashley keeps pulling the math back to earth. Repairs and maintenance are not one bucket. Routine reserves are one thing; bigger capital work is another. The example gets concrete with an $18,000 estimate for floors, a bathroom, and at least part of the kitchens. That changes how the deal should be underwritten before anyone trusts future maintenance assumptions. Vacancy gets the same treatment. Ashley notes that if an owner has to wait for a tenant to move out, the property is going to sit empty during renovation. Three months is not a rounding error. Dave separates that short stabilization hit from the longer operating picture, because a renovation year can make the deal look worse than it really is. Still, the annual math stings. Three empty months can read as 25% vacancy, even if the property later settles into a normal pattern. For a B-minus area, Ashley would rather use 8% to 10% vacancy than pretend the unit stays leased forever. The lesson is cautious, but not scared. Cash flow only helps when the investor includes repairs, vacancy, timing, and downside costs before calling the deal healthy.

As heard by us

Cash flow only works when every real expense is counted.

Dave Meyer and Ashley Kerr make the point plainly: rental cash flow is not real if it only subtracts the mortgage payment from rent. The episode stays grounded in a single on-market deal, which helps the math feel concrete instead of theoretical.

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Want a cleaner way to calculate rental cash flow without leaving out the real costs?

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