(Rent + Other income) × (1 − Vacancy) − Operating expenses − Mortgage P&I
Build it line by line
- Start with market rent supported by leased comparables.
- Add other recurring income only if it's proven (pet rent, parking, fees).
- Subtract vacancy and credit loss.
- Subtract every operating expense: taxes, insurance, HOA, management, maintenance, capex, utilities.
- Subtract principal and interest.
Common mistakes
- Using asking rent instead of achieved rent
- Using the seller's tax bill
- Omitting capex because the house "looks updated"
- Skipping management because you'll self-manage
- Zero vacancy
All figures in this example are hypothetical and chosen to illustrate the math. They are not current Houston market averages, quotes, or forecasts. In our walkthrough property, $2,400 rent produced −$399/month after a full expense build — a result a quick "rent minus mortgage" check ($903 positive) completely hides.
Sources & Further Reading
- Internal Revenue Service — Publication 527, Residential Rental Property. www.irs.gov/publications/p527
- Houston Association of REALTORS — Market statistics and housing reports. www.har.com
Sources accessed for review on October 5, 2026. Laws, rates, and programs change — confirm current details at the source.
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