Rental property cash flow calculator: cap rate, cash-on-cash return and breakeven rent
With the starting values, a $500,000 property bought with $100,000 down and rented for $2,500 a month loses about $498 a month after the mortgage and operating costs. Its cap rate is 4.14%, its cash-on-cash return is −5.98%, and the rent would need to be about $3,025 a month to break even. Enter your own property to see the same four numbers before you buy.
Rental property cash flow
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How to use the rental property cash flow calculator
Enter the purchase, the rent and the annual costs. The results update as you type, and your inputs are kept in the page address so you can bookmark a property or compare two.
The price and the cash you put down; the rest is the mortgage. The starting values are $500,000 and $100,000.
The rate you expect and 15 to 30 years to repay. The starting values are 4.5% and 25 years.
The gross rent before vacancy. The starting value is $2,500.
Property tax, landlord insurance and an allowance for maintenance and repairs, each as a yearly amount. The starting values are $4,000, $1,800 and $2,000.
The share of the year you expect the unit to sit empty, taken off the rent. The starting value is 5%.
A property manager's fee as a percentage of the rent collected after vacancy, or 0% if you manage it yourself. The starting value is 0%.
How to read your result
Four numbers tell you how the property performs: what it puts in or takes out of your pocket each month, and how it compares with other properties and with what you put in.
Monthly cash flow
Rent after vacancy, less the mortgage payment and every operating cost. A negative number is what you would add each month to carry the property. Principal repayment is counted as a cost here even though it builds your equity, so cash flow understates your total return when the property does not lose value.
Cap rate
Net operating income, the rent after vacancy less operating costs but before the mortgage, divided by the price. It measures the property itself, whatever the financing, so it is the number to compare properties with. With the starting values: $20,700 of net operating income on $500,000, or 4.14%.
Cash-on-cash return
Annual cash flow divided by your down payment. It counts only the down payment as cash invested, so if you add closing costs your true figure is a little lower. Negative means the property costs you money each year before any change in its value.
Breakeven rent
The monthly rent at which cash flow is zero, with vacancy and the management fee growing with the rent. With the starting values it is $3,024.56. The expense table and revenue summary under it show where every dollar goes.
Where the money goes
The calculator's starting property, month by month and over a year. The mortgage payment is the largest cost by far.
Before income tax. The mortgage payment uses monthly compounding.
A rental property inside a plan
A physician with a large non-registered portfolio, a business owner with appreciated shares, or a retiree with a rental property held for twenty years all have concentrated embedded gains. The successful investing created the problem. Planning is what determines who benefits from it.
Kaetyn St. Hilaire, CFA, in Capital gains tax in Canada: the quiet drag on retirement income
Cash flow is only the first test. A rental is also a concentrated, leveraged position in one property, its income is taxed at your marginal rate, and the gain when you sell or transfer it is taxable too. Changing a property's use between personal and rental can itself trigger a deemed disposition.
The Canada tax calculator shows what extra rental income does to your tax bill, and the mortgage affordability calculator shows how lenders size a mortgage.
How a property sits beside your portfolio, your corporation and your estate is the work of financial planning in Calgary with Kaetyn.
Kaetyn on YouTube: Canada's Capital Gains Tax: The Silent Killer of Your Wealth?
Rental property calculator questions
Answers drawn from the calculator's own rules and assumptions.
Start with the rent you expect to collect after vacancy, then subtract the mortgage payment, property tax, insurance, maintenance and any management fee. What is left each month is your cash flow. With the starting values, $2,375 of rent after vacancy against $2,873.33 of costs leaves a shortfall of $498.33 a month.
There is no single good number: compare a property with similar ones nearby and with your cost of borrowing. When the cap rate is below the annual mortgage payment as a share of the loan, financing pulls the cash return down. With the starting values the cap rate is 4.14% while the payment is 6.67% of the loan each year, which is why the cash flow is negative.
Yes. Net rental income, after deductible expenses such as mortgage interest, property tax, insurance and repairs, is added to your income and taxed at your marginal rate. Mortgage principal is not deductible. The calculator shows cash flow before income tax.
It is a simplified estimate. It does not include closing costs, legal fees, Land Titles fees in Alberta or land transfer tax elsewhere, major repairs and replacements, income tax, changes in rent or value, or the equity you build as the mortgage principal is repaid.
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