Rent collected is not profit
Calculate the difference between rental revenue, operating income and cash flow.
Materials: calculator page, paper or this response sheet, and a basic calculator. “Keep for comparison” preserves up to three scenarios while that calculator tab stays open.
Prepare the fictional setup
Click “Load example” in the calculator before starting. The first scenario is fictional and may intentionally show a difficult financial outcome.
Complete setup reference
| Purchase price ($) | 350000 |
|---|---|
| Down payment (%) | 20 |
| Annual loan interest rate (%) | 7 |
| Mortgage term (years) | 30 |
| Purchase closing costs (%) | 3 |
| Initial repairs / renovation ($) | 10000 |
| Initial cash reserves ($) | 10000 |
| Monthly scheduled rent (all units) ($) | 2800 |
| Monthly other income ($) | 0 |
| Vacancy / uncollected income (%) | 5 |
| Annual property taxes ($) | 4200 |
| Annual property insurance ($) | 1800 |
| Monthly H O A ($) | 0 |
| Monthly owner-paid utilities / other costs ($) | 100 |
| Annual routine repairs ($) | 2000 |
| Annual capital replacement reserve ($) | 2000 |
| Management fee on collected income (%) | 8 |
Typed responses stay in this tab. Save a PDF to keep your work. Do not enter real household or student financial information.
Warm-up · 5 minutes
A tenant pays $2,800. What expenses might the owner still owe?
Investigate · 25–40 minutes
Step 1
Load the rental example. Record scheduled annual income, vacancy allowance, NOI and monthly cash flow.
Step 2
Explain which costs are deducted before NOI and which are deducted after it.
Step 3
Keep the scenario. Increase vacancy to 10% and annual repairs to $4,000. Compare the results.
Step 4
Read the break-even rent. Write one reason the owner may not be able to charge that amount.
Discuss & reflect · 10 minutes
Does a positive cap rate guarantee positive cash flow?
Extension
Work backward from a $300 monthly cash-flow goal. Explain why changing price while keeping dollar taxes fixed is only a scenario.
Teacher guide and assessment
Expected reasoning
No. Cap rate compares NOI with price before financing. Debt payments and capital reserves can turn positive NOI into negative cash flow. Vacancy and repairs reduce the income available to cover those commitments.
Use the calculator’s breakdown to check rounding. The teacher explanation is tied to the fictional setup above, not to any learner’s edited scenario.
Optional coding extension: send the corresponding fictional JSON example through the API documentation. Compare the response with the browser calculator and explain the calculation-version field.
Quick assessment · 6 points
- 2 points: accurate calculations with units and labeled scenarios.
- 2 points: explains how changing one assumption changes the result.
- 2 points: supports a conclusion with evidence and names a limitation.
Support: work through one scenario together and use a simple table. Challenge: ask the learner to find a counterexample or solve a target by hand. These are flexible suggested grade bands, not a standards-alignment claim.
Methods & sources
Formula explanations, assumptions and source links are on the calculator page. This is an educational activity, not a recommendation to borrow, invest or make a purchase.