When it comes to making a profit in the rental property business, the sky is technically the limit. The profitability of any property hinges on the property’s perceived value and the quality of the agreements negotiated between the involved agents. So technically, there is no on how much a real estate investor can make on a property, rental or otherwise. If you can provide a convincing deal, clients are bound to take it.
However, with the freedom to set your price to whatever you choose, it becomes important to ask the question; how much profit should you make on a rental property? While you obviously want to make enough profit to afford you the good life you want, you don’t want to ask for so much that your offer no longer looks attractive to clients. Finding that sweet spot between making as much profit as possible while still keeping your offer attractive is vital.
In this article, we will help you determine what constitutes good profit on your rental investment. We will introduce you to important terms necessary for calculating net profit on a rental unit, show you how to calculate your net profit, and provide tips on how to maximize profit on your rental property investment.
What is Rental Property Profit?
Rental property profit is the amount of profit you make from renting your property. It is the cash left over from your rental property income after taking out your property taxes, mortgage payments, maintenance costs, insurance premiums, and any other associated expenses.
It is important to note that your rental property profit is not the same as your ROI.

ROI (return on investment) is a measure of the overall efficiency of your investment. It is a measure of how profitable investing in a property is. Your rental property profit, on the other hand, is the net profit you make after subtracting all operating costs, property taxes, and maintenance costs from your rental income (the net income earned on your rental property).

To put it simply, your rental property profit is what is left over from your rental income after you’ve paid for all the expenses spent on the property. This is often also referred to as your cash flow.
Cash Flow = Rental Income – Total Expenses
Since the amount of profit you’d make on a rental unit depends on your rental income, knowing your rental income is essential to accurately calculate profit.
What is Rental Income
Your rental income is the overall amount of money you make on a rental property. This is more than just the amount of money you make on rent and also covers other income sources from your rental unit, including but not limited to:
- Facilities fees (e.g. gym, parking, laundry, etc.)
- Late payment fees
- Pet fees

To accurately calculate your rental income, remember this simple formula:
Rental Income = Rent + Other Service Fees
Determining Whether or Not It’s a Good Investment
A rental property is considered profitable when the property has a positive cash flow i.e. it generates more income than expenses. Negative cash flow, on the other hand, means the property generates more expenses than income, making such a property a bad investment for real estate investors.
When determining whether or not a property is profitable and would make a good investment, it is important to consider all the income and expenditure sources on the property.
Some income sources include:
- Rent: This is the primary income source, representing the monthly payments made by tenants.
- Utility Reimbursement Fees: You should charge fees for utilities provided (e.g. water, electricity, and gas) if you would be paying for utilities personally. If your tenants would pay for their utilities on their own, then this shouldn’t be included.
- Parking Fees: If your rental property offers paid parking, remember to account for charges for parking spaces provided to tenants.
- Laundry Facilities: Many residential properties offer additional laundry services. If your property does, remember to include revenue from your laundry services when calculating your net rental income.
- Storage Fees: If your property rents out additional storage spaces, income generated from this service should also be included.
- Pet Fees: If you own a rental residential property, you might want to consider charging an additional fee to tenants with pets. If you do, this should also be taken into account when calculating your rental income.
- Amenities Fees: If your rental property comes with additional amenities like gyms, swimming pools, or recreational areas, the income generated from these amenities should also be taken into account.
- Additional Fees: Additional charges like application fees, late payment fees, and charges for damages should also be accounted for.
Expenses may include:
- Property Purchase Price: This is the cost of purchasing the property.
- Property Taxes: This includes all taxes levied on the property by the government.
- Property Management Fees: This includes all the fees paid to property management companies and real estate agents in charge of managing your property.
- Maintenance and Repair: This is the cost of renovating, maintaining, and repairing damages to the building.
- Insurance: This is the cost of your property insurance.
- Utility Cost: This is the cost of the utilities like water, electricity, and gas. This shouldn’t be included if the tenants would be paying for utilities on their own.
- Administrative Costs: This includes all administrative expenses including the cost of employing a professional accountant, office supplies, and so on.
- Additional Costs: Additional fees like marketing and advertising fees, legal fees, homeowners association fees, and so on should also be added
- Vacancy and Bad Debt Allowance: This is the estimated loss incurred from vacant units and unpaid rents.
By carefully analyzing and calculating all the income sources and expenses associated with the property, you can easily determine the overall profitability of your real estate investment and how much cash flow the property brings in.
How Much Profit is Good Profit for a Rental Property?
In the real estate industry, any profit is good profit. That being said, the more money you can make on your rental property the better. Having said that, it is important to note that what is considered a good profit would vary depending on several factors. These include:
Property Cost
Typically, the more expensive the property, the greater the profit you’d want to make on it. This is because higher property costs generally involve larger investments, which carry more risk and demand higher returns to justify the investment.
Property Type and Conditions
The type of property you own and the condition its in greatly influences how much profit you can make. Well-maintained properties with desirable features and modern amenities tend to attract more tenants and generate higher rates. There is also the fact that these types of properties tend to require less maintenance and renovation, thereby requiring less expenses.

Market Conditions
Market conditions play a crucial role in dictating what constitutes good profit in rental property investment. Things like demand and supply, current economic conditions and trends, and local market dynamics would affect how much profit you can possibly make on a rental property.
Property Location
Where a property is located also affects its profitability. Properties located in desirable areas such as urban centers and areas with a strong job market are bound to be in high demand and as such, generate higher income and appreciate faster.
So basically, what would be considered good profit for one property might not necessarily be considered good profit for another property. That being said, no matter the property, you’d want a profit margin of above 10%.
The profit margin on a rental property investment is the percentage of total income generated on the property that turns into profit.

A 10% profit margin means that ten percent of the total income generated by the property is profit after all expenses have been deducted. In other words, for every dollar of revenue the property generates, 10 cents is kept as profit. A 10% profit margin and above is a good profit for a real estate property, though anything between 5% and 10% is a good place to start.
Leveraging Expenses to Increase Rental Property Profit
The easiest way to maximize profit on your rental property is to increase your rent. The more your rent, the more your income. The more your income, the more your potential profit. That being said, increasing your rent increases the risk associated with your property and could lead to higher vacancy rates, increased tenant turnover, and could give your property a negative reputation. Leveraging expenses, on the other hand, doesn’t come with any such risks.
Leveraging expenses involves employing strategic methods to manage and reduce the costs associated with your rental property. This lets you increase your profit margins without directly affecting your rental income. A few strategies you can employ include:
- Take Maintenance Seriously
Investing in regular maintenance can help prevent your property from developing any serious damage which would require a significant sum of money to fix. While this might increase maintenance cost, it would save you a lot more money which would have otherwise been spent on repairs. Money that’d be translated into profit.

- Make Energy-Efficient Improvements
Making energy-efficient improvements can save you a significant amount of money on energy expenses over time. Invest in energy-efficient upgrades like power-saving bulbs, smart thermostats, and energy-efficient appliances. Moreover doing this also increases your property’s value.
- Make Purchases in Bulk
When purchasing supplies, be sure to buy them in bulk whenever you can. Since businesses often offer discounts for bulk purchases, doing this can save you a significant amount of money over time.
- Take Advantage of Tax Deductions
The strategic use of real estate tax deductions can help you maximize tax liabilities significantly. By understanding and leveraging available tax deductions, you can effectively reduce your taxable income, thereby increasing your property’s overall profitability.
Conclusion
There is no set rule that determines how much profit you should make on your rental property. What would be considered a good profit would vary depending on several factors including your property cost, property type and condition, property location, and the prevailing market conditions. Typically though, you’d want to go for a profit margin of above 10%, though a 5% – 10% profit margin would be considered good profit for a start.