Long-term rentals

How it makes money

Rent pays the mortgage, taxes, insurance and upkeep. What's left each month is cash flow, and over time you also build equity as the loan balance falls and the property gains value.

The numbers to watch

Monthly cash flow

Rent minus every expense, including the mortgage and reserves for vacancy, repairs and capital expenditures. $200+ a month is a common target.

Cash-on-cash return

A year of cash flow divided by the cash you put in. 8%+ is strong; 4–8% is fair.

Cap rate

Net operating income divided by the price, ignoring financing. Useful for comparing properties; 8%+ is strong, 5–8% fair.

Break-even price

The highest price at which the deal still cash-flows $0, given your rent and loan terms.

What to check before you buy

Location

Strong rental demand, good schools and low crime.

Condition

Repairs you'll need before and after the first tenant.

Financing

Rate, down payment and term drive most of the monthly cost.

Management

Self-manage, or budget about 8–10% of collected rent for a manager.

Risks

Vacancy

Empty months still have a mortgage payment.

Repairs

Roofs, HVAC and turnovers are lumpy and expensive.

Tenants

Late rent, damage or eviction costs.

Rates and markets

Adjustable rates and local prices can move against you.