The pro forma on my second rental looked beautiful. Purchase price $218,000. Rehab $14,000. Projected rent $1,850 a month. Taxes, insurance, and mortgage around $1,340 a month. Vacancy allowance 5%. Maintenance 5%. Cap rate on paper, 8.1%. Cash-on-cash, 11.4%.
Three years later, the actual cash-on-cash was 6.2%. I had not miscounted anything on the pro forma. I had counted the wrong things.
This is the article I wish somebody had handed me before I bought that house, and the one I wish the YouTube rental-investing channels would make instead of the ones they keep making.
The line items nobody puts in the calculator
Every beginner rental calculator has about six fields. Purchase price. Rent. Mortgage. Taxes. Insurance. A vacancy percentage. A maintenance percentage. Two of those percentages are where the trouble lives, because the numbers the calculators suggest are fiction.
Vacancy. The common beginner number is 5%, which works out to about two and a half weeks a year. In my four doors over seven years, the worst vacancy stretch was six weeks between tenants in December of a year the local market was soft, which came out to about 14% on that door for that year. The best was a unit that stayed rented with the same tenant for three full years, which was 0%. The five-percent average came pretty close to my long-run blend, but it did not describe any single year on any single property.
CapEx. This is the big one, and it is the one beginner calculators skip entirely or bury inside “maintenance.” Roofs last about 20 years. Water heaters 10. HVAC 15. Flooring 8 to 12 depending on the tenant. None of these are maintenance. They are capital expenditures, they are expected, and they are not optional. If you do not reserve for them monthly, you will feel them as a single horrible check one year. On a typical single-family rental, the honest number is somewhere between 8% and 12% of rent, set aside every month, whether you had a CapEx expense that month or not. On $1,850 rent that is $148 to $222 a month that does not exist in the beginner calculator.
Maintenance, as distinct from CapEx, is the small stuff. Garbage disposal. Running toilet. A window that will not close. Touch-up paint between tenants. Another 5% to 8% of rent in my experience, and I do a lot of the labor myself.
Management, even if you are self-managing, is not free. The honest way to account for this is to count the 8% to 10% you would pay a property manager as a line item even when you are doing the work yourself. That way the spreadsheet is telling you whether the deal works if you eventually burn out on management, which in my experience is something like a 40% chance over any given five-year stretch.
What I’d skip entirely
If you are looking at your first rental deal, here is what I would skip, based on watching other first-time landlords do the version of this I did wrong.
Any deal that only works if you self-manage forever. If the cash flow requires 0% management cost, the deal does not actually cash flow. It just does not pay you for the work you are doing. That is not a rental investment. That is a second job with leverage.
Any deal that only works with 5% vacancy. Run the math at 10%. If it still cash flows, you have margin. If it turns red, the margin is not there.
Any pro forma that does not break out CapEx separately from maintenance. If the spreadsheet is not reserving for the roof, the calculator is lying to you by omission. The roof is still going to need replacement whether the spreadsheet accounts for it or not.
Any “guru” calculator that uses the “1% rule” as the only filter. The 1% rule (monthly rent should be at least 1% of purchase price) was a useful shortcut in 2012 and does not describe almost any 2026 market that is not economically distressed. If you are in a 0.6% market, that does not automatically mean the deal is bad. It means the cash-flow-first framework is not how that deal is going to work, and you need to understand which of appreciation, tax treatment, or leverage is actually doing the heavy lifting.
The part that is still worth doing
None of this is an argument against rental investing. I am still doing it. I plan to keep doing it. The four doors I own have, on net, been a good use of capital over the last seven years, and two of them have been very good. What I am arguing against is the beginner calculator, and the YouTube content that pretends the calculator is the whole picture.
The depreciation schedule on residential rental property, per IRS Publication 527, lets you deduct the building’s value over 27.5 years, which is a real tax benefit that does not show up in cash flow at all (though the recapture at exit takes some of it back). Leverage compounds equity in a way that almost no other investment makes accessible to regular buyers. And a well-chosen rental in a stable neighborhood tends to keep pace with rent growth, which in most of the country over the last decade has outpaced headline inflation.
The problem is not rental property. The problem is the story about rental property, which skips the unglamorous parts, and the unglamorous parts are where the return either shows up or does not.
The spreadsheet on a quiet Sunday
I still pull up my spreadsheet every few months and run the actual numbers on each door. Sometimes a door has had a bad year and I think about selling it. I usually do not. The bad years are not the ones that decide the outcome. It is the long-run blend, calculated honestly, and the honesty is the part you have to supply yourself, because nobody else will put it in the calculator for you.