Breaking Down the Numbers: What a Real Cash-Flowing Deal Looks Like

Every real estate investor loves the idea of “cash flow”—the monthly profit left over after all expenses are paid. It’s the foundation of long-term wealth in rental property investing. Yet, many new investors rely on rough estimates or oversimplified rules of thumb, like the 1% rule, without truly understanding the detailed breakdown of what makes a property cash-flow positive.

Let’s take the guesswork out of it. Here’s a clear, step-by-step breakdown of what a real cash-flowing deal looks like—complete with practical numbers, realistic scenarios, and the critical details that often get overlooked.

Gross monthly rental income is the total rent you expect to collect before any expenses. This is the top-line number and the starting point for your analysis.

For example:

  • A single-family rental might command $2,000 per month.

  • A duplex could bring in $1,800 per unit, for a total of $3,600 per month.

  • A small triplex might bring in $1,200 per unit, totaling $3,600 per month.

This figure is easy to find by researching comparable properties in the area, reviewing rental listings, or asking property managers for local market data. However, gross income is only the beginning. It does not reflect your true cash flow.

Operating expenses are the recurring costs of owning and managing the property, regardless of financing. Many investors underestimate these expenses, leading to inflated cash flow projections. A conservative estimate is to assume 30–50% of gross rent will go toward operating expenses.

Let’s break down common categories:

  • Property Management Fees: Typically 8–10% of monthly rent. For a $2,000 rental, that’s $160–$200.

  • Repairs and Maintenance: A safe estimate is 5–10% of rent per month. For a $2,000 rental, that’s $100–$200. Even newer properties will have ongoing wear and tear.

  • Capital Expenditures (CapEx): Large, infrequent costs like roofs, HVAC systems, and appliances. Budget 5–10% of rent monthly. For a $2,000 property, that’s $100–$200.

  • Property Taxes: Varies by location. Could be as low as $150 per month in some areas or over $600 in high-tax states.

  • Insurance: Often $75–$150 per month for a single-family home.

  • HOA Fees: If applicable, can range from $100 to $500 per month or more.

  • Utilities: If the landlord covers utilities, include an estimate based on property size and local rates.

Example Breakdown on a $2,000/month rental:

  • Property Management (8%): $160

  • Maintenance (5%): $100

  • CapEx (5%): $100

  • Property Taxes: $300

  • Insurance: $100

  • Total Monthly Operating Expenses: $760

Your Net Operating Income (NOI)—which is gross rent minus operating expenses—would be $2,000 - $760 = $1,240.

If you’re financing the property with a mortgage, the next step is to subtract your monthly loan payment. For example:

  • Loan amount: $240,000

  • Interest rate: 7%

  • 30-year fixed term

  • Monthly principal and interest payment: $1,596

Continuing the example:

  • Net Operating Income: $1,240

  • Monthly mortgage: $1,596

  • Monthly cash flow: Negative $356

In this scenario, the property would be cash-flow negative, despite the initial assumption based on gross rent. This highlights the importance of analyzing all expenses, not just relying on the mortgage or gross rent figures.

Let’s adjust the numbers to create a realistic, cash-flowing scenario:

  • Purchase price: $250,000

  • 25% down payment: $62,500

  • Loan amount: $187,500

  • 7% interest, 30-year fixed

  • Monthly principal and interest: $1,246

Let’s say this is a duplex with two units renting for $1,400 each:

  • Gross rent: $2,800

  • Operating expenses (35% of gross): $980

  • Net Operating Income: $2,800 - $980 = $1,820

Subtract the mortgage:

  • $1,820 - $1,246 = $574 positive cash flow per month

Annual cash flow: $574 x 12 = $6,888

Cash-on-cash return: $6,888 / $62,500 = 11%

This is an example of a true cash-flowing property: one where rental income covers all operating expenses, mortgage payments, and leaves a profit each month.

Smart investors also factor in:

  • Vacancy Rate: Typically 5–8% of gross rent. On a $2,800 duplex, that’s $140–$224 per month.

  • Turnover Costs: Cleaning, minor repairs, and marketing to fill a vacancy.

  • Unexpected Repairs: Even with a CapEx budget, surprises happen—furnace replacements, water heaters, plumbing issues.

By conservatively estimating expenses and adding a margin for error, investors protect themselves from being overly optimistic and ensure the property remains a solid performer.

Final Thoughts: Cash Flow is About the Margins

A real cash-flowing deal is more than just a high rent check. It’s about the relationship between purchase price, financing, expenses, and rental income—and whether the income left over justifies the risk and effort.

Always break down the numbers:

  • Start with realistic gross rent estimates

  • Subtract all operating expenses

  • Factor in mortgage payments

  • Account for vacancy and reserves

The result is the true monthly profit—or loss—you can expect.

Real estate investing is a long game. Careful analysis, conservative estimates, and attention to detail are what separate successful investors from those who find themselves surprised by thin margins or negative cash flow.

Stephen Husted