Is My Rental Property Actually Profitable? Here's How to Tell

The Profitability Illusion

Your tenant pays you $1,800/month. Your mortgage is $1,200. You're making $600/month profit, right?

Not even close. That simple calculation ignores property taxes, insurance, maintenance, vacancy, capital expenditures, and a dozen other costs that eat into your bottom line. Many landlords who think they're profitable are actually losing money — they just haven't done the math.

True profitability requires tracking every dollar in and every dollar out. No shortcuts, no estimates, no "I'll figure it out at tax time."

The Three Metrics That Matter

1. Net Operating Income (NOI)

NOI = Gross Rental Income - Operating Expenses

Operating expenses include everything except your mortgage payment: property taxes, insurance, maintenance, repairs, property management, vacancy loss, and utilities you cover.

If your NOI is positive, the property generates enough income to cover its operating costs. If it's negative, you're subsidizing the property even before mortgage payments.

2. Cash Flow

Monthly Cash Flow = Rental Income - All Expenses (including mortgage)

This is the money that actually hits your bank account each month. Positive cash flow means the property pays for itself and puts money in your pocket. Negative cash flow means you're writing a check each month to keep the property.

A common benchmark: aim for at least $100-200/month positive cash flow per unit after all expenses.

3. Cash-on-Cash Return

Cash-on-Cash Return = Annual Cash Flow / Total Cash Invested

This tells you how hard your invested dollars are working. If you invested $50,000 and net $5,000/year in cash flow, your cash-on-cash return is 10%. Compare this to alternative investments to determine if the property is worth the effort.

Hidden Costs That Kill Profitability

• Vacancy: Budget 5-8% of annual rent for vacancy, even if you've never had a gap
• Maintenance reserves: Set aside 1% of property value annually for repairs
• Capital expenditures: Roofs, HVAC systems, and water heaters don't last forever — budget for replacements
• Turnover costs: Cleaning, painting, minor repairs, and lost rent between tenants add up fast

Know Your Numbers

The difference between a profitable landlord and a struggling one often isn't the property — it's the tracking. LandlordIQ calculates NOI, cash flow, and cash-on-cash return automatically for each property, updating in real time as you log transactions. No more guessing whether your investment is working. Start tracking for free.