How to Know If Your Rental Property Is Actually Making Money

"Rent covers the mortgage" is the bar many landlords use to decide a property is doing fine — and it's a dangerously low one, since it ignores maintenance, vacancy, capital reserves, and the return on the actual equity tied up in the property.

Start with true cash flow, not just rent minus mortgage

Subtract every real expense — taxes, insurance, maintenance, management, an honest vacancy allowance, and a capital reserve contribution — from rental income. What's left is true cash flow, and it's often meaningfully lower than the naive "rent minus mortgage" figure.

Check the return on your actual equity

A property might have modest cash flow but represent a large amount of tied-up equity if it's appreciated significantly or the mortgage is mostly paid down. Calculating cash flow as a percentage of your current equity (not the original purchase price) reveals whether that equity is working as hard as it could elsewhere.

Compare against realistic alternatives

A property returning 4% might feel fine in isolation, but is worth reconsidering if that same equity, refinanced or sold and redeployed, could reasonably generate a meaningfully higher return elsewhere — including in another property.

Look at the trend, not just one year

A single strong or weak year can be noise. Reviewing NOI, cash flow, and expenses over 3-5 years reveals whether the property's performance is genuinely improving, declining, or holding steady.