How much do landlords make on a rental property

There's no single answer to how much landlords make, because it depends on the property, the loan, and the year. On one real example, a $230,000 rental renting for $1,800 a month, Lineage's plan builder models about $295 a month in cash flow after expenses. That's a modeling assumption, and real years land above or below it.

$295 is a lot less than the rent, and cash flow is only one of the ways a rental pays. Below is the math on that example, the other three returns, and what makes the real number smaller. Everything here is built from one listing and isn't a forecast for any property.

The worked example: from $1,800 to $295

The listing is 2107 S Seale Rd in Phenix City, Alabama.

The $503 is rent less the bills that arrive every month on schedule. It isn't income yet, because nothing has paid the manager or the plumber. The $208 is simply the gap between $503 and the plan's $295. The plan describes the $295 as after property management, taxes, insurance, and maintenance, and before a reserve. It doesn't publish a line-by-line breakdown, so treat the $208 as the room the plan leaves for management and maintenance, not as a quoted cost. It doesn't show a separate amount for vacancy, so an empty month comes out of the $295.

Different assumptions give a different answer on the same property. Our article on rental property expenses uses an example 8% management fee plus set-asides for repairs and vacancy, and lands at $92 a month. The listing's own Cash ROI of 9.5% is a different measure again: the site defines it as the projected average yearly cash flow over 10 years on a 20% down payment, interest-only, after vacancy and maintenance.

Over a year, the modeled $295 a month is $3,540, before income tax.

The four ways a rental pays

Cash flow is the part that shows up in your bank account. Our post on the four ways a rental builds wealth goes deeper on each. Here's how they land on this one property.

Appreciation isn't cash. It's equity you'd collect only when you sell or refinance. The plan builder assumes 3% a year, which on $230,000 is $6,900 in the first year, before selling costs. That's a modeling assumption, not a forecast. Values can stay flat or fall.

Principal paydown is the tenant's rent paying down your loan balance. On an interest-only loan the payment covers interest only, so the balance doesn't drop. You get a lower payment now and no paydown until the interest-only period ends. The plan builder's loans are interest-only for 10 years and then convert to principal and interest. In our own illustration, with the rate held at 6.5% and the $184,000 repaid over the remaining 20 years, the loan payment goes from $997 to about $1,372, so cash flow drops unless rent has grown by then. See principal paydown for how it works on an amortizing loan.

Tax benefits come mostly from depreciation. IRS Publication 527 says residential rental property is generally depreciated over 27.5 years, and land isn't depreciated at all. Mortgage interest and ordinary operating costs are generally deductible against rental income too. Together they can offset some or all of your cash flow in a given year. The depreciation comes back when you sell, though, and the IRS generally taxes that part of the gain at up to 25% on the building. Rental losses are usually limited by the passive activity rules as well. Your CPA confirms how it applies to you. More in tax benefits.

To see how these four could add up over ten years with your own starting cash, build my plan. No sign-up.

What makes the real number smaller

The $295 is a planning figure, and real years don't arrive evenly.

Vacancy. When the property is empty, the $1,800 rent stops and the $1,297 payment doesn't. Against the plan, one empty month costs the $1,800 you expected, about six months of the modeled $295. Our article on what happens when a rental sits empty walks through it.

Repairs. They come in lumps. A hypothetical $3,000 repair equals about 10 months of $295 cash flow. The Lineage Standard requires at least 50% of useful life left on the roof, HVAC, plumbing, water heater, and electrical panel at purchase, which lowers the odds of a big one early. It doesn't make them zero.

A bad year. Put a vacant month and a repair in the same year and this example's cash flow can go negative for that year. That's the gap reserves are there to cover. Lineage recommends keeping six months of the full payment (mortgage, taxes, and insurance) in reserve, $7,782 here, and the lender sets its own minimum, which your consultant confirms.

Tax and insurance increases. Property taxes and insurance premiums can rise, and every extra dollar comes straight out of cash flow.

What changes with several rentals

At $295 a month, one rental doesn't replace a paycheck. A single vacant month can wipe out about half a year's modeled cash flow. What one rental does is put the other three returns to work: appreciation if values rise, paydown once the loan amortizes, and the tax benefits.

Six rentals at the modeled $295 each is $1,770 a month during the interest-only years, and a vacancy at one of them takes a smaller bite out of the total than it does when you own just one. Lineage's plan builder, for example, shows $65,000 to start plus $25,000 added each year reaching 6 rentals by 2036, at an assumed 3% yearly appreciation. It shows about $2,097 a month of cash flow by then, more than $1,770, because it also assumes rent grows 3% a year. That's illustrative, not a promise. Our post on how many rental properties it takes to retire works through that question in full.

Illustrative example built from one listing's figures. It is not a forecast and not tax or investment advice. Actual results vary based on market conditions, property performance, and financing terms.

On this example the $295 is the only return that arrives every month, and the bigger number, $6,900 of year-one appreciation, shows up only if the 3% assumption holds. Build my plan with your numbers, or talk to a consultant.