Become a Member

HMW #108: Will this rental property cash-flow?

alan corey evaluate a property long-term rentals real estate 101 Jun 28, 2023


Read Time: 5.25 minutes


Our favorite sponsors who help keep this newsletter free for you:

Today's issue is sponsored by Jasmine Mortgage Team my preferred residential lender. My team and I have done over 83 deals directly with Jasmine and her team. Work with someone that understands real estate. Book a free 15-minute consultation with Jasmine today. 

And Steadily Landlord Insurance, the premier insurance company for landlords of all types. Landlord insurance created by landlords offering dwelling, umbrella, builder's risk, renters, flood insurance and more. Whether you have short-term or long-term rentals, student housing, vacant properties, or other investment needs, Steadily offers fast, affordable insurance quotes.



How do you know that rental property you have your eye on will actually cash-flow?   

Sizing up properties quickly is a real estate investor super-power. I'm here to give you guidance to make sure you aren't wasting your time with over-priced junkers. 

Sizing up potential investments quickly is a great skill to hone so that you can find winners and make offers before other investors beat you to it.

You don't want to spend hours researching a home and finding out it's never going to make money, do you?

So are you up for a quick 3 step process on how to size up deals in jiffy?

Ok, ok, I'm trying to save you time here!  I didn't know you were this impatient. Fine, I'll make this quick.

Most people size up a rental property in one very big wrong way:


If the listing photos look nice then it would make a good rental.


 Or they make these other conclusions on if a property is a potential investment:

  • "No, I would never live there."
  • "OMG, that bathroom is too much!"
  • "It's off-market so it must be a deal!"
  • "Oh, that school district is great, must buy!"

Oh, I'm sorry.  I'm just trying to help you make some money here.  Give me a break.


Step 2: Estimate the expenses

Real estate investing is not just all income.  Even with a paid off property you have taxes, insurance, and utility bills to pay.  You need a good handle on expenses in order to make sure the income we just calculated can cover them all and more. That "more" is the most important part, that's going to be your cash flow!

Here is the one back-of-the envelope math expenses that you need to know:  40%.  On most my properties, about 35% of all income I take in go out to expenses.  But I plan for 40%.

This 40% includes 5 things and you can give them whatever percentage you like to add up to 40%:

  • 5% vacancy
  • 5% property taxes
  • 5% insurance
  • 10% repairs
  • 15% capital expenditures

So if I know after doing Step 1 above that a property rents for $2,400.  I'll assume 40% of that, or $960 a month, is going to cover all the business expenses of running that property.  

Again, 40% is conservative, and once I have that calculation I move on to the next step in the process.  

See, I told you the math isn't too hard on this.  Maybe even a little fun? 


 Ok, don't get carried away.  We've got one more step to go and you need to remain focused on real estate and not damaging your Realtor's car.



  • Loan amount - This is not purchase price, this is loan amount.  You typically have to bring 15-25% of purchase price to close on an investment property.
  • Loan term - Always go for 30 year fixed.  A lesson we will cover another day.
  • Interest rates - This is probably going to be 1% higher than you are seeing primary home buyers getting because investments are considered slightly more risky to lenders.


There you go! 

In this scenario, we just walked you through, you found a property that will probably rent for $2,400.  Expenses are going to be around $960.  And your mortgage payment is going to be around $1,000.

Now it's simple subtraction:

$2,400 - $960 estimated expenses - $1,000 in mortgage payment =  $440 of cash flow.

Ideally you have a minimum of $200 cash flow per door, so this is a great start.  You have to have the cash to make up the difference between the purchase price and the loan amount you put in to pull this deal off.

But the big win? You just ran your first numbers on a real estate deal! I hope you didn't think it was going to be harder that that. Now do you feel like this is something you can do on your own moving forward?

Wonderful! But do seem a little upset that you have to do a little work.  But the best news of all,  it only took 7 minutes of read time out of your busy schedule. Not a bad use of the day for the Busiest Person in The World.

Now with all your extra time you can go listen to the House Money podcast, read my book "House FIRE", and also follow the House Money Twitter account.  

Ok, I can work with baby steps. I had to shoot my shot, you know.  You go at your own pace and just know I'm here when you are ready for more.


  • Learn simple quick math to size up a deal.
  • Rental comps online will give you idea of rental income
  • The 40% rule will give you a good estimate on expenses
  • Use the Google Mortgage Calculator as final step to see potential cash flow


Are you a newer investor looking for some guidance?

We teach real estate! 


Check out House Money Media courses and coaching options.


Want to promote your brand to a growing and dedicated real estate audience? Reach out to [email protected].