A lot of landlords think they are making money on their rental properties. Some of them are right. A surprising number of them are not — they just do not know it yet.
The difference is in the math. Specifically, in whether they are doing it correctly.
I have talked to people who own rental properties in Philadelphia and genuinely believe they are cash flow positive because their rent is higher than their mortgage payment. That is not how you calculate whether a rental property is making money. That is how you trick yourself into thinking it is.
Here is the real calculation.
What Most Landlords Get Wrong
The most common mistake I see is this: someone buys a rental property, collects $1,500 a month in rent, pays $900 a month in mortgage, and concludes they are making $600 a month.
They are not calculating four things that will absolutely cost them money.
Property tax. In Philadelphia, property tax runs approximately 1.3% of assessed value annually. On a $200,000 property that is roughly $217 per month.
Insurance. Landlord insurance on a Philadelphia rental runs approximately $80 to $120 per month depending on the property and coverage.
Maintenance and repairs. Every property needs work over time. Roofs, HVAC systems, plumbing, appliances — experienced investors typically budget 1% of the property value per year for maintenance. On a $200,000 property that is $167 per month.
Vacancy. Properties are not rented 12 months a year every year. Tenants move out. Properties sit empty while you find new tenants. A conservative vacancy estimate for Philadelphia is 5% — meaning you should plan for about 18 days per year of lost rent.
When you add all of that back in, that $600 per month suddenly looks very different.
The Real Numbers on a Philadelphia Rental
Let me walk through a real example.
Say you buy a two-bedroom rowhouse in West Philadelphia for $200,000. You put 20% down — $40,000 — and finance $160,000 at 6.5% interest on a 30-year mortgage.
Monthly mortgage payment: $1,011 Property tax: $217 Insurance: $100 Maintenance reserve: $167 Total fixed monthly costs: $1,495
You rent it for $1,500 per month. After a 5% vacancy adjustment, your effective monthly rent is $1,425.
Monthly cash flow: $1,425 minus $1,495 = negative $70 per month.
You are losing $70 a month on a property you thought was making you money.
Now — this does not necessarily mean the property is a bad investment. You are still building equity every month. The property may appreciate over time. The tax benefits of owning a rental property are real. But you need to know the actual cash flow number before you make any decision.
When the Numbers Do Work
The same property at a lower purchase price tells a very different story.
Buy that same West Philadelphia rowhouse for $150,000 instead of $200,000 — which is achievable if you buy at a sheriff sale, negotiate aggressively, or find a distressed property.
Monthly mortgage on $120,000 at 6.5%: $759 Property tax: $163 Insurance: $100 Maintenance reserve: $125 Total fixed monthly costs: $1,147
Effective monthly rent after vacancy: $1,425
Monthly cash flow: $1,425 minus $1,147 = positive $278 per month.
Annual cash flow: $3,336 Cash-on-cash return on your $30,000 down payment: 11.1%
That is a strong rental property. The difference between the two scenarios is $50,000 in purchase price. This is why buying right matters more than almost anything else in real estate investing.
Cash-on-Cash Return
The metric I care most about when evaluating a rental property is cash-on-cash return. It tells you what percentage return you are getting on the actual cash you invested — your down payment plus any renovation costs.
Most experienced investors look for a minimum of 8% cash-on-cash return on a rental property. Below 5% and you have to ask yourself whether the hassle of being a landlord is worth it compared to simply investing that money elsewhere.
If your cash-on-cash return is negative, you are subsidizing your tenant’s housing. That is not investing. That is something else entirely.
The Vacancy Question
One number that changes everything is your vacancy rate assumption. In strong rental markets, vacancy is low. In weaker markets or with difficult tenants, it can run much higher.
Philadelphia has strong rental demand in most neighborhoods right now. But some blocks are stronger than others. Know your specific neighborhood’s vacancy reality before you build your numbers.
Find Out If Your Property Is Actually Making Money
I built a free Rental Property ROI Calculator so you can run the real numbers on any property — including all the costs most landlords forget to include.
Enter your purchase price, down payment, monthly rent, monthly expenses, interest rate, and vacancy rate. It calculates your true monthly cash flow, annual cash flow, and cash-on-cash return — and tells you whether the deal meets the 8% benchmark that experienced investors use.
Run your current property through it. You might be surprised by what you find.
Use the free Rental Property ROI Calculator below to find out if your property is actually making money.