Cash flow analysis is the cornerstone of rental property underwriting. It answers the fundamental question: after all expenses, how much money does this property put in my pocket each month?
The Cash Flow Stack
This example illustrates why a deal with a 6.3% gross yield can still have negative cash flow — debt service is the dominant line item. Investors need either higher rents, lower prices, or larger down payments to achieve positive cash flow in most markets.
The 50% Rule Shortcut
A quick-and-dirty heuristic: assume 50% of gross rent goes to expenses (excluding debt service). If NOI (50% of gross rent) exceeds monthly mortgage payment, the property cash flows. This rough screen saves time before running a full model.
Using API Data to Build the Model
ZipMarketData's /property-estimate endpoint builds this stack automatically for any ZIP code — it combines HUD FMR rents with Redfin median prices and standard expense ratios to produce a projected monthly cash flow, cap rate, and CoC return.