Rental property cash flow: the real calculation every investor needs

Gross yield – annual rent divided by the purchase price – is the number that appears in every market analysis. It's useful for comparing areas, but it isn't what the investor takes home. Real cash flow is the difference between the income coming in and all the expenses going out. Knowing it before you buy is the difference between a rational investment and a blind bet.

Income: rent adjusted for voids

The gross monthly rent is what the tenant pays. But you have to adjust for voids: no flat is occupied 100% of the time. In high-demand markets the void rate is 3-5% a year (2-4 weeks). In thinner markets, 8-12%. Rent net of voids = annual rent × (1 - void rate).

Fixed annual costs

• IBI (the local property tax): €150-600/year depending on the municipality and the cadastral value.
• Community fees (paid to the owners' association): €300-1,200/year depending on the building.
• Home insurance: €150-350/year.
• Rent guarantee insurance: 3-5% of the annual rent.
• Mortgage repayments: The biggest cost if the asset is financed.

Variable annual costs

• Maintenance and repairs: 1-2% of the property's value a year (there are years with no costs and years with a broken boiler).
• Letting management: 8-12% of the gross rent if you hand it over to a property manager.
• Amortised tenant turnover: Cleaning + repainting every 3-4 years ≈ €133-200/year amortised.

Full worked example

Asset: A 75 m² flat in Murcia, bought at auction for €75,000 + €10,000 of renovation. Valued at €95,000. Mortgage: €76,000 over 30 years at 3.8% = a €354/month repayment. Own capital: €9,000.

• Gross annual rent (€620/month): €7,440
• Estimated voids (5%): -€372 → Net income: €7,068
• IBI: -€420
• Community fees: -€480
• Home insurance: -€200
• Rent guarantee insurance (4%): -€298
• Annual mortgage repayments: -€4,248
• Maintenance (1.2% of €95,000): -€1,140
• Management (10% of gross rent): -€744
• Amortised turnover: -€200
• NET ANNUAL CASH FLOW: -€662/year (-€55/month)

The asset eats up €55/month with €9,000 of own capital. But it generates debt amortisation (the tenant pays off part of the mortgage) and capital appreciation. Bought outright – with no mortgage – the same asset would generate +€3,586/year of positive cash flow (4.2% cash-on-cash on €85,000).

Why leverage changes the whole calculation

With a mortgage, the capital invested is small (€9,000) but the cash flow can be neutral or slightly negative. Without a mortgage, the cash flow is clearly positive but the capital tied up is enormous (€85,000). The decision whether or not to leverage depends on whether the investor has other assets in which to deploy the capital freed up by the mortgage. If they can repeat the deal 5 times with the same capital thanks to leverage, the total return far outweighs the cost of the neutral cash flow.

Related resources: For the tax depreciation that reduces the tax hit on rental income (and improves net cash flow after tax), the article on tax depreciation has the detailed calculation. For the BRRR strategy, which maximises cash flow while minimising own capital, the article on the BRRR strategy has the full framework. For an inventory of assets to apply this calculation model to, RadarPro's opportunities dashboard is the place to start.