Amateur landlords track 'rent minus mortgage'. Professional operators track a full monthly operating statement. The difference shows up the first time a water heater fails.
The statement, line by line
- Scheduled rent: what the lease says.
- Less vacancy: the share of the year the unit sits empty. Even great units turn over.
- Effective income: money actually expected.
- Operating expenses: taxes, insurance, utilities, management (a % of collected rent), maintenance reserve, other recurring items.
- Equals monthly NOI: the property's standalone performance.
- Less debt service: mortgage payments, kept separate on purpose.
- Equals cash flow: what actually reaches you.
Keeping operating expenses and debt service separate lets you answer two different questions: is this a good property (NOI), and is this a good financing (cash flow)?
Reserves are not optional
Roofs, boilers and turnovers are predictable in aggregate even though they're irregular per month. Landlords who don't budget a maintenance line are simply borrowing from their future self at the worst possible moment. Whatever reserve you choose, track actuals against it annually.