Rental Income Calculator Formula

Understand the math behind the rental income calculator. Each variable explained with a worked example.

Use the Rental Income Calculator

Formulas Used

Effective Annual Income

effective_annual_income = (gross_annual_rent + other_annual) * (1 - vacancy_rate / 100)

Gross Potential Income

gross_potential_income = gross_annual_rent + other_annual

Annual Vacancy Loss

vacancy_loss = (gross_annual_rent + other_annual) * vacancy_rate / 100

Variables

VariableDescriptionDefault
num_unitsNumber of Units4
avg_monthly_rentAverage Monthly Rent Per Unit(USD)1200
vacancy_rateExpected Vacancy Rate(%)8
other_monthly_incomeOther Monthly Income(USD)200
gross_monthly_rentDerived value= num_units * avg_monthly_rentcalculated
gross_annual_rentDerived value= gross_monthly_rent * 12calculated
other_annualDerived value= other_monthly_income * 12calculated

How It Works

Projecting Rental Income

Rental income projection starts with gross potential income and adjusts for expected vacancy and collection losses.

Formula

Gross Potential Income = (Units x Avg Rent x 12) + Other Income

Effective Income = Gross Potential x (1 - Vacancy Rate)

Other Income Sources

  • Laundry facilities, parking fees, pet rent
  • Storage rentals, vending machines
  • Late fees and application fees

    • Worked Example

    A 4-unit property averages $1,200/month rent per unit with $200/month other income and 8% vacancy.

    num_units = 4avg_monthly_rent = 1200vacancy_rate = 8other_monthly_income = 200
    1. 01Gross monthly rent: 4 x $1,200 = $4,800
    2. 02Gross annual rent: $4,800 x 12 = $57,600
    3. 03Other annual income: $200 x 12 = $2,400
    4. 04Gross potential income: $57,600 + $2,400 = $60,000
    5. 05Vacancy loss: $60,000 x 8% = $4,800
    6. 06Effective annual income: $60,000 - $4,800 = $55,200

    Frequently Asked Questions

    What vacancy rate should I use?

    Use your local market vacancy rate, typically 5-10% for residential. Higher for student housing or seasonal markets. Check local data from property management companies or census data for your area.

    What counts as other income?

    Laundry income, parking fees, pet rent, storage fees, vending, late fees, and any revenue beyond base rent. This can add 3-8% to gross income for well-managed properties.

    Should I use current rents or market rents?

    For valuation, use market rents to assess the property at its potential. For cash flow projections, use current actual rents and phase in increases to market rate over time.

    Ready to run the numbers?

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