# How to Calculate Cash Flow on Rental Property (Calculator Included)

Source: https://www.youtube.com/watch?v=62g5F2gtskY
Recap page: https://rapidrecap.app/video/62g5F2gtskY
Generated: 2025-12-12T14:35:08.614+00:00

---
## Quick Overview

The correct way to calculate cash flow for a rental property involves accounting for all necessary monthly inputs, including fixed expenses like mortgage payments, taxes, and insurance, and variable expenses like vacancy (suggested 8%), repairs/maintenance (suggested 8%), capital expenditures (suggested 0%), and management fees (suggested 10%), rather than just subtracting the mortgage payment from rental income, which leads to an inaccurate, overly optimistic cash flow calculation.

**Key Points:**
- Accurate cash flow calculation requires including all fixed and variable expenses, not just the mortgage payment.
- The featured duplex example generates a $388/month cash flow with conservative estimates, resulting in a 7.89% 5-year annualized return.
- Variable expenses like Vacancy (8%), Maintenance (8%), CapEx (0%), and Management Fees (10%) significantly impact the final cash flow.
- The speaker strongly advises against basing projections solely on the best-case scenario month, as this leads to disappointment; a more conservative estimate is necessary.
- For the example property (built in 1890), the speaker budgets $1,700 annually for repairs/maintenance ($141.67/month) and $4,000 annually for snow removal/landscaping, which are often overlooked CapEx/Repair items.
- The goal is to create a realistic cash flow projection that accounts for these necessary, but often inconsistent, expenses.
- The speaker emphasizes that cash flow should be positive even when accounting for these necessary reserves, especially for older properties.

![Screenshot at 00:06: The BiggerPockets calculator interface is displayed, showing inputs for Purchase Price \($350,000\), Closing Cost \($5,000\), and toggling 'I will be rehabbing this property' to 'on' with an ARV of $380,000 and Repair Costs of $18,000.](https://ss.rapidrecap.app/screens/62g5F2gtskY/00-00-06.png)

**Context:** The video features a discussion between BiggerPockets podcast host Dave Meyer and guest Ashley Kehr, an investor, focusing on the proper methodology for calculating cash flow on rental properties using the BiggerPockets calculator. They use a specific example of an old duplex in Western Michigan to demonstrate how including all potential expenses, especially variable ones like vacancy and maintenance, leads to a more realistic and sustainable cash flow projection, contrasting this with the common mistake of only subtracting the mortgage payment from rental income.

## Detailed Analysis

Dave Meyer and Ashley Kehr discuss the critical importance of calculating rental property cash flow accurately by including all necessary expenses, rather than just subtracting the mortgage payment from the gross monthly rent. Meyer emphasizes that many investors make the mistake of ignoring variable expenses or only using best-case scenarios, which leads to disappointment. They walk through an example duplex in Western Michigan, initially listed for $350,000, which is over 100 years old. They set the purchase price at $350,000 with $5,000 in closing costs, and because it requires rehabilitation, they toggle that option on, estimating an After Repair Value (ARV) of $380,000 and $18,000 in repair costs. Kehr suggests using conservative percentages for expenses: 8% for Vacancy, 8% for Repairs & Maintenance, 0% for Capital Expenditures (CapEx) initially, and 10% for Management Fees, even if self-managing, to account for future transitions. They also incorporate annual expenses like $2,400 for property taxes and $1,300 for insurance. For variable expenses, Kehr advises budgeting for things like snow removal ($50/month fixed expense in their example) and appliance replacements over the long term, even if they don't happen immediately. Using the input of $3,725/month gross rent and financing details (25% down payment, 6.8% interest rate, 30-year term), the analysis yields a $388/month cash flow and a 7.89% 5-year annualized return. Kehr notes that with her conservative expense estimates, the deal is still viable, but if she were to increase the vacancy rate to 10%, the cash flow would drop slightly, demonstrating the sensitivity of the analysis to expense assumptions.

### Initial Deal Parameters

- Property Address: Western Michigan
- Purchase Price: $350,000
- Closing Cost: $5,000
- Rehab required: Yes
- ARV: $380,000
- Repair Costs: $18,000

### Expense Assumptions (as % of Gross Monthly Income)

- Repairs & Maintenance: 8%
- CapEx: 0%
- Vacancy: 8%
- Management Fees: 10%

### Fixed Annual/Monthly Expenses

- Property Taxes: $2,400 Annual
- Insurance: $1,300 Annual
- Garbage: $50/month (Custom Expense)

### Financing Details Used

- Down Payment: 25% ($87,500)
- Interest Rate: 6.8%
- Loan Term: 30 years
- Loan Amount: $225,375

### Rental Income Assumptions

- Gross Monthly Income: $3,725
- Annual Income Growth: 2%

### Initial Cash Flow Analysis Result

- Monthly Cash Flow: $388/mo
- 5-year Annualized Return: 7.89%
- Mortgage Payment: $1,711.30

### Key Takeaway

- Conservative expense allocation, especially for vacancy and maintenance, is crucial to avoid being disappointed when actual expenses exceed initial projections.

![Screenshot at 00:06: Demonstration of filling out the initial purchase details in the BiggerPockets calculator, including ARV and Repair Costs.](https://ss.rapidrecap.app/screens/62g5F2gtskY/00-00-06.png)
![Screenshot at 01:17: Dave Meyer introduces the 'In This Episode' list, outlining the structure of the cash flow discussion.](https://ss.rapidrecap.app/screens/62g5F2gtskY/00-01-17.png)
![Screenshot at 08:22: The screen displays the BiggerPockets calculator after inputting purchase details for a duplex in Western Michigan, showing the rehab toggle activated.](https://ss.rapidrecap.app/screens/62g5F2gtskY/00-08-22.png)
![Screenshot at 18:34: The final results screen showing a monthly cash flow of $388/mo and a 5-year annualized return of 7.89%.](https://ss.rapidrecap.app/screens/62g5F2gtskY/00-18-34.png)
![Screenshot at 21:56: The 'Monthly expense breakdown' screen showing Total Expenses of $3,094, with Variable expenses at $1,266 \(Vacancy, Maintenance, CapEx, Management fees\) and Fixed expenses at $50 \(Garbage\).](https://ss.rapidrecap.app/screens/62g5F2gtskY/00-21-56.png)