Would you keep a rental that cash flows $40 a month after reserves?

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Would you keep a rental that cash flows $40 a month after reserves?

Jayden Thompson
Investor · Calgary, AB · Member since 2021 · 17 posts · 5 votes

Hey everyone, I’m Jayden. I own rental properties in Canada and the US.

Something I’m interested in is how other owners judge whether an existing rental is actually performing well.

Here’s a hypothetical example:

Rent collected: $2,000
Mortgage payment, including principal and interest: $1,200
Property taxes and insurance: $250
Management: $160
Maintenance allowance: $100
Vacancy allowance: $100
Capital expenditure reserve: $150

That leaves $40 a month after those allowances. The mortgage is getting paid down, but there isn’t much cash left for anything unexpected.

Do you subtract reserves before calling the remaining money cash flow? Or do you track actual cash flow separately and keep a reserve fund for the whole portfolio?

I’m especially interested in how people handle this across multiple properties. Would you keep a rental with numbers like these because of the debt paydown, or would that cash margin be too thin?

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Muyees Ayilara
Lender · Boynton Beach, FL · Member since 2026 · 139 posts · 61 votes
1d

I keep em if rent can go up. That $40 after real reserves is basically zero, one repair wipes a year. I underwrite low end MLS rent and taxes reassessed to ARV, if it still DSCRs over 1.15 I keep for paydown, if not I sell.

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  • Randy Schell
    Member since 2026 · 252 posts · 35 votes
    2d

    Forty dollars after real reserves is thin, but honestly it's not a bad place to be if the reserves are real and actually get set aside. I'd just check whether rent has room to grow or the loan balance is dropping fast enough that you're happy with it, since a thin month still builds equity.

    Randy, Bunklow

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  • Jimmy Samaha
    Staten Island, NY · Member since 2013 · 131 posts · 66 votes
    1d

    Your numbers add up, 2,000 minus 1,960 leaves 40. One thing I'd point out is that maintenance, vacancy and capex are allowances, so in a month where it's occupied and nothing breaks, more than 40 actually lands in your account. The real question is whether those allowances are realistic for that specific property, since that decides if 40 is true cash flow or just a number on paper.

    I'd also look at that 40 as a return on the equity you have in the house today, not just what you paid for it, because that tells you if the money could work harder somewhere else. A low rate on the mortgage is a point in favor of keeping it. A thin margin isn't automatically bad, it just leaves less room if rent drops or a big repair hits before the reserve fund builds up.

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  • John RacinePro Member
    Rental Property Investor · Casselberry, FL · Member since 2008 · 125 posts · 74 votes
    1d

    Jayden, yes, I subtract reserves before I call anything cash flow. My rule when I buy is that a property has to at least break even after every expense, including a management fee even if I'm the one managing it. I don't count tax benefits or principal paydown to get there, and ideally there's a small profit on top. Your example passes that test, barely.

    Jimmy's right that it comes down to whether the allowances are realistic, and vacancy is the one I'd test first. $100 on $2,000 rent is 5%, about 18 empty days a year. I underwrite 10%, because I'd rather overestimate vacancy and come out ahead than the other way around. At 10%, the same property is about $60 a month in the red. So whether this rental is "thin" or "losing money" comes down to one assumption, and the first thing I'd check is your real vacancy and turnover history on that unit.

    On multiple properties: I keep reserves segregated, one account per property, so a thin property can't quietly borrow from a healthy one and I can see exactly what each one is carrying. A bank like Relay that lets you open accounts on demand makes this easy to set up.

    I'd also analyze whether a long-term rental is the highest and best use of the property. Depending on the location, who needs housing nearby and local rules, the same property with the same mortgage might earn more as a mid-term or short-term rental, or long-term might still be the right fit. Either way, it's worth running those numbers before deciding whether $40 is good enough.

    If your real vacancy holds close to 5% and rents have room to grow, I'd keep it and work on the income side. I just wouldn't buy another one at that margin.

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  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    1d

    I would ask the question: Where is the asset? If it is in Cleveland or Detroit or Baltimore, or another classy area where you can pick up cheap rentals, I would say no. But if it was in an area that has appreciation or is growing, then I would say yes.

    I bought a rental 10 years ago that had about that cash flow, and since that time, it's cash flowing about $400 per month. Between the mortgage paydown and appreciation, the property is worth significantly more.

    Also, do you have another investment where you could put money that could produce better results? That is the other thing to consider.

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  • Ametria Chaney
    Realtor · Memphis, Shelby County · Member since 2026 · 235 posts · 79 votes
    1d

    Jayden, I love that you're underwriting with real reserves — most of the "great cash flow" deals I see only look great because someone skipped the reserves entirely. Yes, subtract reserves before calling it cash flow; the money sitting in the account isn't profit until the roof doesn't need it.

    The question I'd add: what's your equity position and your plan for it? If you're getting meaningful debt paydown and the market has steady demand, $40/month with real reserves is a hold for me — it's a savings account that pays you a little. If you're thin on equity too, or the property would be hard to sell without bringing cash to closing, that's when I'd think about exiting.

    One more test: run the same math as if you were buying it today at today's price. If you wouldn't buy it now, that's your answer.

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  • Clever Mukori
    Member since 2026 · 46 posts · 19 votes
    1d

    On the tracking question, I'd keep two numbers per property: the underwriting cash flow with allowances (your $40) and the actual cash that hit the account each month after real repairs and vacancy. Once you have a few doors, it usually works better to hold the reserves in one portfolio account, but still tag every repair and vacancy month to the property it came from. Then once a year compare each property's actual repairs and vacancy to the $100 / $100 / $150 you assumed, and you'll know whether that $40 is real or whether that one house is quietly eating the reserve the others are building. A property that's honestly at $40 with a low rate and good paydown is a keep for me, but one that keeps overshooting its allowances is the one I'd sell first.

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  • Inder Singh
    Real Estate Agent · Boston, MA · Member since 2025 · 64 posts · 23 votes
    1d

    Jayden, I subtract the reserves first. If a deal only works when I pretend the roof is immortal, it doesn't work.

    Where I'd add a wrinkle: unit count changes how safe that $40 is. I run 17 units, mostly 3- and 4-unit buildings. In a 3-family, one vacancy is a third of your income gone, not 5%, and one heating system serves every unit at once. So my cushion per door has to be bigger than your example, not smaller, even though the reserves sit in one pooled account.

    Would I keep a true $40/month door? Only if it survives a bad year on paper — one vacancy plus one real repair — and the rents still have room to grow. If the equity is trapped and the reserves keep getting raided, the paydown alone doesn't save it.

    Happy to compare notes with other small-multifamily operators — feel free to connect.

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  • Muyees Ayilara
    Lender · Boynton Beach, FL · Member since 2026 · 139 posts · 61 votes
    1d

    I keep em if rent can go up. That $40 after real reserves is basically zero, one repair wipes a year. I underwrite low end MLS rent and taxes reassessed to ARV, if it still DSCRs over 1.15 I keep for paydown, if not I sell.

    1Reply
  • Muyees Ayilara
    Lender · Boynton Beach, FL · Member since 2026 · 139 posts · 61 votes
    1d

    I keep em if rent can go up. That $40 after real reserves is basically zero, one repair wipes a year. I underwrite low end MLS rent and taxes reassessed to ARV, if it still DSCRs over 1.15 I keep for paydown, if not I sell.

    0Reply
  • Ashish AcharyaBusiness Member
    CPA, CFP®, PFS · Sarasota, FL · Member since 2017 · 5k+ posts · 3k+ votes
    1d

    Jayden, with 27 doors, I’d probably track two numbers for each property: the cash that actually hits the account and the cash flow after realistic reserves. That makes it easier to see which properties are genuinely performing versus which ones are being carried by the rest of the portfolio.

    I also think it’s important to separate cash flow from taxable income. Principal paydown, reserves for future repairs, and depreciation can all make those two numbers look very different.

    A $40 monthly margin would be pretty thin for me unless the property has strong equity growth, room for rents to improve, or some other reason that makes the return worthwhile.

    And since you have properties in both the U.S. and Canada, I'd also make sure you're looking at the after-tax return across the portfolio, not just the property-level cash flow.

    Feel free to DM me, I’d be happy to send over a few resources that might be helpful.

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  • Alex S.
    Investor · Washington, US · Member since 2021 · 136 posts · 40 votes
    1d

    I'd compare the $480 annual cash flow plus annual mortgage principal paydown with the equity I'd actually walk away with after selling costs. That return on equity tells me more about keeping it than the $40 alone.

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  • Rachel Mazzanti
    Virtual Assistant · Remote · Member since 2020 · 131 posts · 53 votes
    21h

    $40 after real reserves is thin, but it's honest. And honest beats a property that looks like it cash flows $400 until the roof goes.

    The question I'd ask is whether those reserves are actually funded, not just budgeted. An allowance on a spreadsheet doesn't pay a contractor. My company moves the reserve money into its own account as soon as rent clears, per property, so the operating balance never lies to us. If the $150 capex and $100 vacancy slices are just lines on paper, that $40 is really $290 waiting for a bad month.

    I'd also track two numbers, not one: cash flow before reserves, and cash flow after. The first tells you what the property throws off. The second tells you what you can actually spend. Then the keep-or-sell call gets simpler. If rent has room to grow and the loan balance is dropping fast, thin is fine. If rent is stuck and reserves keep getting raided, the equity story has to do a lot of heavy lifting.

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  • Henry Lazerow
    Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes
    19h

    All the profit is after rent has compounded for a few years while your mortgage is fixed. Keep it! Most good areas will be similar returns to that year 1.

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  • BJ Everson
    Realtor · Columbus, Franklin County · Member since 2026 · 54 posts · 15 votes
    14h

    Credit for budgeting reserves honestly. Most '$40 a month' rentals are really negative once capex shows up. One more way to look at it: from your numbers, NOI before debt is about $1,240 against $1,200 of P&I, so DSCR is around 1.03x. A $40 cushion means one bad turnover wipes out a year of cash flow. Whether I'd keep it comes down to three things: rent growth headroom (is it below market?), equity and paydown, and whether there's a value-add lever like a unit upgrade or utility bill-back. If none of those apply, I'd look at what that equity could earn in a property that covers its debt 1.25x or better.

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  • Henry ClarkPro Member
    Developer · Member since 2020 · 4k+ posts · 4k+ votes
    14h

    OP. Realize hypothetical, but I would go with reality per unit.

    1. Is this an A/B/C market? $100 vacancy reserve on $2,000 monthly doesn’t cover the risk of a C market losing 2 or 3 months rent, with turnover costs.

    2. Capital spending. Do an actual inventory. Hvac, roof, windows, flooring, bathroom, etc. $150 monthly capex reserve doesn’t cover a known issue.

    3. Equity position. $20k on a $200k property? $50k on $200k? If it is $50k equity I would definitely sell it. Reposition to a more value add appreciation.

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  • Harrison C.
    Member since 2017 · 72 posts · 31 votes
    8h

    I track it both ways, because they answer different questions.

    Cash flow with reserves subtracted is the buy or keep number. Actual cash flow is what really happened, and the reserves themselves sit in one account for the whole portfolio, topped up every month from each property's allowance. Once a year I compare what each house actually spent on repairs, turnovers and empty days against what I set aside for it. That comparison is the real report card. Your $100 vacancy and $100 maintenance lines are guesses until you have a year of that property's own numbers, and they can be off in either direction.

    On the $40 itself, I would not sell over it alone. I would first ask whether anything about how the place is rented can change. I rent houses by the room, and the same house can carry a very different rent line that way, but the cost side changes too: utilities, a cleaner for the shared areas, furniture, more move-outs. So I only count it as better when the net after all of that beats the whole-house rent by a real margin.

    If neither the rent nor the costs can move and the loan paydown is the only return, I would compare that paydown, plus whatever appreciation you honestly expect, against what the same equity would earn somewhere else. Thin is fine for a while. Thin with no reserve behind it is what hurts.

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