A property can collect respectable rent and still perform poorly. The problem is often that owners compare rent with the mortgage payment and leave out the rest of the operating picture.
Start with collected rent, not advertised rent
Use what is actually collected over time after vacancy and nonpayment, not simply the monthly lease amount multiplied by twelve.
Include recurring ownership costs
Property taxes, insurance, association dues, management or leasing costs, utilities paid by the owner, licensing expenses and routine maintenance all reduce the cash the property produces.
Reserve for irregular expenses
Roofs, HVAC systems, appliances, plumbing, exterior work and tenant turnover do not occur every month, but they are still part of owning the property. A rental that appears profitable only when nothing breaks is not giving you a complete picture.
Count vacancy and turnover
A strong monthly rent can be offset by frequent vacancy, make-ready expenses and repeated placement costs. Look at performance across a full year or multiple years when possible.
Include your own objective
Some owners accept limited current cash flow because they value long-term equity, debt reduction or another strategic benefit. Others need the property to generate dependable current income. Neither objective is automatically wrong, but the property should be judged against the objective you actually have.
If the numbers remain weak after a realistic review, the next question is strategic: improve operations, invest in the property, adjust the rental approach or consider whether continued ownership still serves your goals.