Is Buying a Rental Property Worth It? The Small Landlord Math
“Should I buy a place and rent it out?” — the debate that never ends, at dinner tables and in forums alike. One side says “rent rises every year and the property appreciates”; the other starts with “if you put that money into…” Both are right about their own example, because this question has no general answer — it has an answer computed from your numbers. This post shows how to get that number. (It’s a method guide, not investment advice.)
The math everyone does — and what it misses
The common calculation: “The unit costs 300k, rents for 1,500 a month — that’s 18k a year, 6% return.” That’s gross yield, and it flatters reality. What it skips:
- Vacancy: Every empty month between tenants costs ~8% of the year’s income. Even one month every two years visibly drags the average down.
- HOA dues, insurance, property tax: They run whether the unit is occupied or not.
- Maintenance reserve: Boiler, paint, plumbing — set the money aside even in years nothing breaks.
- Transaction costs: Closing costs, agent fees, make-ready expenses — they belong in your cost basis.
- Your time: Finding tenants, chasing rent, repair calls. As I wrote in rent it out or sell: being a landlord isn’t passive income, it’s a part-time job.
The right math: net yield
Annual net = monthly rent × (12 − vacant months) − (dues + insurance + tax + maintenance reserve)
Divide that by your total cost basis (price + closing costs + make-ready). That ratio is your net yield. Put your numbers into the rental income calculator and you’ll see it in seconds — free, no sign-up.
Then set that number next to your own alternatives: where else your money could sit, at what risk, with what liquidity. Compare with your two numbers, not someone else’s anecdote.
Two truths the ratio doesn’t capture
- Appreciation: The property itself may gain value — but that’s an expectation that varies by market and decade, not a guarantee. Net yield is what you hold today; appreciation is what you hope for. Don’t put them on the same side of the scale.
- Liquidity: A savings account unwinds in a day; a property can take months to sell. If there’s any chance you’ll need the money fast, that difference can matter more than the yield.
Decision signals
- Net yield is meaningful and the unit is manageable (location, demand, condition) → a rental can make sense for your profile.
- The ratio hovers near break-even and the only upside is “it’ll appreciate anyway” → you’re not buying an investment, you’re buying a bet that needs maintenance.
- You’re down to details like furnished vs not → continue with the depreciation math in furnished vs unfurnished.
If you buy: run it like a system from day one
What makes the return isn’t just the purchase — it’s the operating years: the right tenant (screening criteria), documented handovers, and consistent records. RentMind is built for exactly that: rent, tenant, lease and expenses under each property on one screen, reminders before rent day and renewals, and each unit’s true net in front of you. Free to start — you did the math to buy; keep doing it while you own.
Frequently Asked Questions
Is buying with a mortgage worth it? Same method, one addition: the payment enters the net-yield math as an expense. If rent doesn’t cover the payment, the gap is a monthly subscription you’re paying — decide knowingly, and compare against your own cost of borrowing.
What’s the fastest way to raise the yield? Cut vacancy. Raising rent 10% is hard; eliminating one vacant month a year is usually easier and has nearly the same effect — good listings, fast turnarounds, good tenant relationships.
Do small units or large units return more? The general pattern: small units yield proportionally more but turn over faster; large units are steadier at lower ratios. Check actual rent-to-price ratios for both types in your own market before generalizing.