How do I calculate if a Twin Cities rental property is actually profitable?
Here's the spreadsheet I use for every investment property I evaluate. Most investors miss at least three of these line items.
**Monthly Income:** - Gross rental income: $ - Less: Vacancy allowance (5%): $ - Less: Rent concessions/loss to lease: $ - **Effective Gross Income:** $
**Monthly Expenses:** - Mortgage (P&I): $ - Property taxes: $ - Insurance: $ - Maintenance reserve (5% of gross rent): $ - Property management (8-10%, if used): $ - HOA fees (if applicable): $ - Capital expenditure reserve (5%): $ - Utilities (if landlord-paid): $ - **Total Expenses:** $
**The Three Profitability Metrics:**
1. **Cash Flow = Effective Gross Income - Total Expenses.** This needs to be positive. Even $100/month means the property pays for itself.
2. **Cap Rate = Net Operating Income / Purchase Price.** Target 5%+ in Minneapolis. 7%+ in St. Paul or North Minneapolis.
3. **Cash-on-Cash Return = Annual Cash Flow / Total Cash Invested.** This accounts for your down payment, closing costs, and initial repairs. Target 8%+.
**The four things most investors forget:** 1. Capital expenditure reserve (roof, HVAC, appliances — they WILL need replacing) 2. Vacancy (tenants leave, and finding new ones takes time) 3. Property tax increases (Minnesota reassesses regularly) 4. Insurance cost increases (15-20% in the last two years alone)
**My rule:** If a property doesn't cash flow positive with ALL reserves funded, it's not an investment — it's a speculation. Pass.
I wrote this answer, and I stand behind it. I'm Chris Deutsch, a Minneapolis Realtor (MN #20382264). Twenty-five years of walking these neighborhoods, checking basements, and sitting across kitchen tables from people making exactly this call. I re-check every answer and date it — this one was last verified .
If your situation is more specific than the market, that's the one worth talking through. Email me at chris@lakesarearealty.com.