Key Takeaways
- ✓Cash flow = Rent - Vacancy - Management - Maintenance - Insurance - Taxes - Mortgage.
- ✓Cap rate measures property return without financing. Cash-on-cash measures YOUR return on YOUR cash invested.
- ✓Target 5-7% cap rate and 8-12% cash-on-cash return in east Hillsborough.
- ✓If monthly expenses exceed rent after vacancy, the property has negative cash flow — fix the math or do not buy.
Quick answer: To know if your rental is profitable, subtract all expenses (vacancy, management, maintenance, insurance, taxes, mortgage) from gross rent. The remainder is your cash flow. Divide annual cash flow by your total cash invested to get cash-on-cash return. Target 8%+ to justify the effort and risk.
The Cash Flow Formula
Rental profitability comes down to one equation:
Monthly Cash Flow =
Gross Monthly Rent
- Vacancy Reserve (5-8% of rent)
- Property Management Fee (8-12% of rent)
- Maintenance Reserve (1% of property value / 12)
- Insurance (landlord policy / 12)
- Property Taxes (annual / 12)
- HOA (if applicable)
- Mortgage Payment (P&I)
= Net Monthly Cash Flow
If that number is positive, you are cash-flow positive. If it is negative, you are writing a check every month to own a rental — and that is a problem unless you have a very specific strategy for appreciation or value-add.
Real Example: Typical Valrico 3BR
Here is how the math works on a typical 3-bedroom home in Valrico:
| Line Item | Monthly | Annual |
|---|---|---|
| Gross Rent | $2,000 | $24,000 |
| Vacancy (5%) | -$100 | -$1,200 |
| Management (10%) | -$200 | -$2,400 |
| Maintenance (1% of $360K) | -$300 | -$3,600 |
| Insurance | -$292 | -$3,500 |
| Property Taxes | -$375 | -$4,500 |
| Mortgage (P&I on $288K @ 6.5%) | -$1,820 | -$21,840 |
| Net Cash Flow | -$1,087 | -$13,040 |
Wait — that is negative? Yes, and this is reality for many properties purchased at 2024-2026 prices with high interest rates. The monthly mortgage payment alone ($1,820) almost equals the gross rent. This property does not cash-flow with 20% down at 6.5%.
When the Math Does Work
The same property becomes profitable under different conditions:
- •Lower purchase price. Bought at $280,000 instead of $360,000 — lower mortgage, lower maintenance reserve, same rent.
- •Lower interest rate. A 5% rate drops the mortgage to ~$1,546/month — saving $274/month.
- •Larger down payment. Putting 40% down cuts the mortgage in half and flips the numbers positive.
- •Higher rent. A Newsome-zoned home renting for $2,400 instead of $2,000 changes the equation significantly.
- •Owned free and clear. Without a mortgage, the same property generates ~$733/month in positive cash flow.
Cap Rate vs. Cash-on-Cash Return
These are two different metrics and they answer different questions:
Cap Rate
Net Operating Income / Purchase Price
Measures the property's return without financing. Use it to compare properties to each other. Does not reflect your personal return.
Cash-on-Cash Return
Annual Cash Flow / Total Cash Invested
Measures your return on your money. Includes financing. This is the number that tells you if the investment is worth your capital.
What to Do If Your Rental Is Not Profitable
- •Reprice the rent. You may be undercharging. A professional rental analysis can identify if you are leaving money on the table.
- •Reduce expenses. Shop insurance, challenge your property tax assessment, or switch to a more cost-effective property manager.
- •Refinance. If rates drop, refinancing can significantly reduce your mortgage payment.
- •Sell. If the numbers do not work and will not improve, selling may be the smartest move. Holding a money-losing property hoping for appreciation is speculation, not investing.
The Bottom Line
Run the numbers before you buy — and re-run them annually. A rental property is only an investment if it generates returns. If the math does not work, no amount of hoping will change it.
Frequently Asked Questions
Frequently Asked Questions
What is a good cap rate for a rental property in Florida?+
What is a good cash-on-cash return for a rental?+
How do I calculate vacancy cost?+
When is a rental property NOT profitable?+
Barrett Henry
Designated Property Manager
23+ years of Florida real estate experience. Barrett lives in Valrico and manages rentals across east Hillsborough County — the same neighborhoods he drives through every day.
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