Start with annual gross scheduled income (GSI) — what the property would earn if fully rented at market rates all year. For a single-family home renting at $1,800/month: GSI equals $1,800 times 12 equals $21,600. This is the starting point, not the finish line.
Multiply GSI by your vacancy rate. In tight markets, 5% (0.5 months vacant per year) is reasonable. In softer markets, use 8–10%. On our $21,600 GSI at 5% vacancy: $21,600 minus $1,080 equals $20,520 effective gross income.
Operating expenses typically run 35–50% of effective gross income. Line items include: property taxes, insurance, repairs and maintenance (budget 1% of property value annually), property management (8–12% of collected rent if outsourced), CapEx reserve (budget 5–10% of gross for major system replacements), and utilities paid by landlord. On our example at 40% expenses: $20,520 times 0.40 equals $8,208 in operating expenses.
NOI: $20,520 minus $8,208 equals $12,312 per year.
Subtract your annual mortgage payment (principal and interest only — taxes and insurance are already in operating expenses). On a $140k loan at 7% for 30 years: annual P&I is approximately $11,172. Cash flow: $12,312 minus $11,172 equals $1,140 per year ($95/month). Positive but thin — typical for current rate environments in mid-tier markets.
Dan White is a licensed Virginia real estate agent at Pearson Smith Realty and founder of FreeDealCalc.com. He has been investing in Northern Virginia real estate for 20+ years.