Rental properties can produce cash flow, appreciation, loan paydown and tax benefits. But they also demand time, capital and risk management.
The four ways rentals make money
Cash flow from rent after expenses, appreciation, mortgage principal paydown by tenants and tax advantages such as depreciation. Analyze each realistically; do not rely on appreciation alone.
Run the numbers
Estimate rent, then subtract vacancy, taxes, insurance, maintenance, capital expenditures and property management. Compare net operating income with the price for the cap rate and with cash invested for the cash-on-cash return. Include closing costs and repairs in cash required.
Financing and reserves
Investment property loans typically need 15%–25% down and carry slightly higher rates. Keep six months or more of expenses in reserves per property. Start with a single property you can afford to hold through vacancies.
Try the numbers
Use our Rental Property Calculator to see this in practice. With its default example (Purchase price: $300,000; Down payment: 25%; Mortgage rate: 7%), it shows monthly cash flow: -$138. Adjust the inputs to match your situation.
Key takeaways
- Underwrite cash flow conservatively.
- Include vacancy, capital expenses and management.
- Hold reserves for each property.
This article is for general education and is not personalized financial, tax or legal advice. Rules and limits change; confirm current figures with official sources such as IRS.gov, SSA.gov and StudentAid.gov, or consult a qualified professional. © 2026 FinanzCalc.