A rental property can show attractive headline rent while producing weak cash flow after expenses. A useful analysis therefore starts with realistic income and a complete list of costs.

Begin with expected gross rent. Use evidence that is relevant to the property type and location, and avoid treating an optimistic advertised rent as guaranteed income. If other recurring income exists, record it separately.

Next, account for vacancy and collection uncertainty. Even a well-located rental may experience periods without rent or other income interruptions. Your assumptions should be visible so they can be changed and tested.

List operating expenses. Depending on the property, these may include taxes, insurance, association or service fees, maintenance, repairs, property management, utilities paid by the owner and other recurring costs.

Financing should be shown separately from property operating performance. Record loan amount, interest rate, payment structure and other relevant borrowing costs. This helps distinguish how the property performs from how your chosen financing affects your cash position.

A simple annual cash-flow framework is: collected rental income minus operating expenses minus debt service. The result is only as useful as the assumptions behind it.

Run more than one scenario. What happens if rent is lower than expected, vacancy is higher or maintenance costs increase? Scenario analysis can reveal how sensitive the investment is to changes.

A spreadsheet or property analyzer can make these assumptions easier to update and compare. Use calculations as decision-support information and verify important financial, tax and lending matters with appropriately qualified professionals.