How To Increase Cash Flow From A Rental Property
Author:
Miranda CraceOct 14, 2024
•4-minute read
Owning rental property is all about making your money work for you, so you can enjoy the payoff of your real estate investment. But managing rental property is similar to managing a business, and that can be complex. There are revenues, capital costs, taxes, insurance and other operating expenses to monitor and navigate. At the end of the day, you want to make sure your cash inflows exceed your outflows.
How To Calculate Rental Property Earnings
Before you focus on increasing cash flow, you need to figure out how much of it your investment property currently generates. Cash flow from rental property can vary widely. Ultimately, you want to see a positive cash flow, meaning the property brings in more money than it costs to operate.
To calculate cash flow from rental property, simply subtract your rental property expenses from your rental property income.
The formula for calculating cash flow is:
Income From Rental Property − Expenses From Rental Property = Cash Flow
Here’s a real-life example:
You own a multifamily property with four units that each rent for $2,000 per month, totaling $96,000 per year in rental income.
But your vacancy rate is estimated at around 10%, so you subtract $9,600 from the total rental revenue to get $86,400.
Then you have to subtract your annual expenses from your rental revenue. Your mortgage payment totals $42,000 for the year. On top of that, you’ll spend around $25,000 for insurance, real estate taxes, property management, maintenance, repairs, lawn care and utilities.
These bring your total annual expenses to $76,600. Subtract that from your gross rental property income and you have an annual cash flow of $19,400.