How to Build a Rental Property Cash Flow Projection

Cash Flow vs. NOI

NOI measures the property. Cash flow measures what remains for the investor after financing and applicable below-the-line items.

Cash Flow = NOI − Debt Service − CapEx Reserves

Step 1: Project Gross Collected Income

Start with scheduled rent. Subtract vacancy and credit loss. Add other income.

• Scheduled rent: $28,800
• Vacancy (5%): −$1,440
• Other income: +$600
• Gross collected income: $27,960

Step 2: Project Operating Expenses

List every operating expense. If you model income growth, model expense growth too.

• Property taxes: $3,600
• Insurance: $1,200
• Property management (8%): $2,240
• Repairs and maintenance: $2,400
• Total operating expenses (excluding reserves): $9,440

Step 3: Calculate NOI

NOI = Gross Collected Income − Operating Expenses

NOI = $27,960 − $9,440 = $18,520

Step 4: Subtract Debt Service

If you have a $180,000 loan at 7% interest for 30 years:

• Annual debt service: approximately $14,380

Step 5: Subtract CapEx Reserves

CapEx reserves are not optional — they are scheduled future capital outflows. Budget for roof, HVAC, appliances, and major system replacements.

• CapEx reserves: $1,440/year

Step 6: Calculate Cash Flow

Cash Flow = NOI − Debt Service − CapEx Reserves

= $18,520 − $14,380 − $1,440 = $2,700/year

Cash-on-Cash Return

Cash-on-cash return measures the investor's levered return in year one.

Cash-on-Cash = Cash Flow ÷ Cash Invested

If you invested $45,000 (down payment + closing costs):

• Cash-on-cash = $2,700 ÷ $45,000 = 6%

The Principle

If you model income growth, model expense growth too.

A projection that grows rent 3% per year but holds expenses flat is not a projection — it's a hope. Expenses grow too: property taxes rise after sale, insurance premiums increase, and maintenance costs climb as the property ages. Model both sides honestly, or your cash flow projection will mislead you.