Will My Rental Property Actually Make Money?

Earning consistent monthly profits is the ultimate goal of rental property investing. Yet many new landlords skip the crucial step of calculating their actual profit potential before diving in. This leaves them surprised when the numbers don't add up the way they expected.

Before you purchase a rental property—or if you already own one and want to understand your true profit margins—you need to run the numbers carefully. Let's walk through exactly how to calculate what you'll actually earn each month.

How to Determine What You Can Charge for Rent

Your rental income isn't something you can simply decide on your own. The local market sets the price based on supply and demand—how many similar properties are available and what tenants are willing to pay.

Research Your Local Rental Market

Start by understanding what comparable properties in your area charge. Look for rentals that match yours in:

Size and layout — Same number of bedrooms and bathrooms
Condition and age — Similar renovation level and building age
Location — Same neighborhood and school district
Amenities — Comparable features like parking, laundry, outdoor space

Browse rental listings on platforms like Zillow, Apartments.com, or Craigslist to see what landlords are asking for similar properties. You can also get a free rent estimate from Hommy based on your property's specific characteristics and local market data.

Consider What Makes Your Property Stand Out

Once you have a baseline, think about factors that might let you charge more—or require you to charge less:

Pet-friendly policies can command higher rents
Included utilities may justify a premium
Furnished units often rent for more, especially for short-term professional tenants
Recent upgrades like new appliances or modern finishes add value
Deferred maintenance or outdated features may require a discount

Pro tip: Visit competing rentals during open houses. You'll learn what your competition offers and may connect with experienced landlords willing to share advice.

Account for Vacancy in Your Income Projections

Here's a mistake many new landlords make: they calculate income assuming the property will be rented 12 months per year. Reality is different.

Build Vacancy Into Your Budget

Even well-managed properties experience vacancy when tenants move out. Plan for vacancy by reducing your annual income projection accordingly.

For example, if you expect to charge $2,000 per month, your gross annual rent would be $24,000. But if you budget for one month of vacancy per year, your effective annual income drops to $22,000.

Factors that affect your likely vacancy rate include:

Local economic conditions — Growing job markets attract renters
Property condition — Well-maintained homes rent faster
Pricing strategy — Competitively priced units fill quickly
Tenant retention efforts — Keeping good tenants reduces turnover

Want to minimize vacancy? Check out our guide on choosing a property management company to handle tenant placement and retention.

Calculate Your Monthly Expenses

Most new investors underestimate what it costs to operate a rental property. Your mortgage payment is just the beginning.

Fixed Monthly Expenses

These costs stay relatively consistent each month:

Mortgage payment — Principal and interest (the largest expense for most landlords)
Property taxes — Often higher for investment properties
Insurance — Landlord policies cost more than homeowner policies
HOA fees — If applicable
Property management — Typically 8-12% of monthly rent if you hire a manager

Variable and Periodic Expenses

These costs fluctuate but still need to be budgeted:

Maintenance and repairs — Budget at least 1% of property value annually
Vacancies — Plan for turnover costs between tenants
Capital expenditures — Major replacements like roofs, HVAC, and appliances
Advertising and tenant screening — Costs to fill vacancies
Legal and accounting fees — Professional help as needed
Utilities — When vacant or if included in rent

The Hidden Expense: Your Time

If you're self-managing, remember that your time has value. Responding to tenant calls, coordinating repairs, and handling rent collection all take time away from other activities.

Many landlords find that after accounting for their time, hiring a property manager makes financial sense—especially as their portfolio grows.

Calculate Your Monthly Cash Flow

Now for the simple math. Your monthly cash flow is:

Monthly Rent - Monthly Expenses = Monthly Cash Flow

Let's look at a realistic example:

Income/Expense	Amount
Monthly Rent	$2,000
Mortgage (Principal + Interest)	-$1,100
Property Taxes	-$250
Insurance	-$100
Maintenance Reserve (1%)	-$170
Vacancy Reserve (5%)	-$100
Monthly Cash Flow	$280

This property generates positive cash flow of $280 per month, or $3,360 per year.

Run your own numbers with our free Cash Flow Calculator to see your property's true profit potential.

What If the Numbers Don't Work?

Sometimes the math reveals that a property won't generate positive cash flow. Before walking away, consider these options:

Lower Your Costs

Refinance to a lower interest rate
Shop for better insurance quotes
Handle some maintenance yourself
Negotiate property tax assessments

Increase Your Income

Add value through strategic improvements
Allow pets for higher rent
Include additional services (landscaping, cleaning)
Convert to furnished rental if market supports it

Accept Negative Cash Flow (Carefully)

Some investors accept negative monthly cash flow if they expect:

Strong property appreciation over time
Significant tax benefits that offset losses
The ability to break even after building equity

This is a higher-risk strategy that requires financial reserves. We recommend new landlords focus on properties that at least break even from day one.

Setting Rent Strategically for Long-Term Success

Many successful landlords price their rentals slightly below maximum market rate. Why? Because competitive pricing attracts better tenants who stay longer.

Consider this: raising rent an extra $50 per month earns you $600 per year. But if that higher rent causes your tenant to leave, you might lose $2,000 or more in vacancy and turnover costs.

When to Raise Rent

As a landlord, you'll eventually need to increase rent to keep pace with:

Rising property taxes and insurance costs
Increased maintenance expenses
General market rate increases

The best time to raise rent is typically:

When renewing a lease with an existing tenant
When transitioning to a new tenant
After making improvements that add value

Be sure to research your local landlord-tenant laws, as some areas have rent control regulations that limit how much and how often you can increase rent.

Special Situations That Affect Your Calculations

Buying to Avoid Foreclosure

If you're considering renting your primary residence to avoid foreclosure, run the numbers carefully. Calculate whether the rent you'll collect minus your housing expenses (including the cheaper place you'll rent for yourself) actually puts you ahead financially.

Purchasing for a College Student

Parents sometimes buy near campus as an alternative to paying dormitory costs. Before assuming you'll save money:

Compare actual room and board costs to ownership expenses
Factor in that your child likely won't pay market rent
Calculate whether renting extra rooms to other students makes the numbers work
Consider your ability to sell the property after graduation

These situations require careful analysis beyond simple cash flow calculations.

Your Monthly Profit Calculation Checklist

Before purchasing any rental property, complete this analysis:

Research comparable rental rates in your specific area
Identify what makes your property competitive or not
Calculate realistic monthly income with vacancy factored in
List all fixed monthly expenses
Budget for variable costs and reserves
Subtract expenses from income to find cash flow
Determine if the return justifies the investment
Consider the value of your time if self-managing

Frequently Asked Questions

How much profit should I expect from a rental property?

There's no universal answer, but many investors target monthly cash flow of $100-$300 per unit after all expenses. The right number depends on your market, property type, and investment goals. Some investors accept lower monthly cash flow in exchange for better appreciation potential or properties in premium locations.

Should I include mortgage principal in my expense calculations?

Yes and no. For cash flow purposes, your full mortgage payment (principal + interest) is a cash outflow. But from a wealth-building perspective, the principal portion is actually building your equity—you're paying yourself. Many investors track both "cash flow" and "total return" to get the complete picture.

What's a good vacancy rate to budget for?

A common rule of thumb is 5-8% for well-located properties with strong rental demand. This translates to roughly 2-4 weeks of vacancy per year. In weaker markets or with problem properties, you may need to budget higher. Research local vacancy rates for the most accurate estimate.

How do I know if I should hire a property manager?

Consider professional management if your time is worth more than the management fee, if you own multiple properties, or if your property is far from where you live. Calculate your true hourly rate for self-managing and compare it to the 8-12% a property manager would charge. Learn more in our guide on how much property managers charge.

What if my property has negative cash flow?

Negative cash flow isn't automatically a deal-breaker, but it requires careful consideration. You'll need financial reserves to cover the shortfall, and you should have a clear thesis for why the investment makes sense—whether through appreciation, tax benefits, or planned improvements that will increase income. New investors should generally avoid negative cash flow properties until they have more experience.

The Bottom Line

Calculating your monthly rental profit isn't complicated, but it requires honest accounting of all income and expenses. Too many landlords learn the hard way that they underestimated costs or overestimated rent.

Take time to research your market, budget conservatively for expenses and vacancy, and make sure the numbers actually work before you commit. A rental property that generates consistent positive cash flow month after month is the foundation of successful real estate investing.

Ready to run the numbers on your rental property? Use our free Cash Flow Calculator for a detailed analysis, or get a free rent estimate to see what your property could earn.