CostBreak-even rent covers your full mortgage payment (principal and interest), property tax, insurance, a maintenance reserve, and a vacancy allowance. Many landlords underestimate it by looking only at their mortgage payment and missing the smaller recurring costs.
What actually goes into break-even rent
- Mortgage payment — principal and interest, the largest single component
- Property tax — a fixed annual cost, divided monthly
- Insurance — landlord insurance typically costs more than a standard owner-occupied policy
- Maintenance reserve — a realistic monthly allowance for repairs and wear, even in years nothing breaks
- Vacancy allowance — budgeting for the reality that a unit won't be occupied 100% of the time
- Property management — if you use one, typically a percentage of collected rent
A worked example
$500,000 rental, 20% down, 5.5% rate
| Mortgage payment | $2,430/mo |
| Property tax + insurance | $430/mo |
| Maintenance reserve | $210/mo |
| Vacancy allowance (5%) | $165/mo |
| Break-even rent | $3,235/mo |
Notice the mortgage payment alone is $2,430 — about 75% of the real break-even number. A landlord budgeting only against the mortgage payment would underestimate their true break-even rent by roughly $800 a month in this example. Run your own numbers, with every category included, on the rental cash flow calculator.
The common underestimate
The single most common mistake is treating the mortgage payment as the whole picture, since it's the largest and most visible number. Maintenance and vacancy in particular are easy to skip because they're irregular — nothing breaks most months, so it's tempting to assume nothing ever will, until a furnace or roof repair arrives all at once. Budgeting a steady monthly reserve for both, even in the months they're not needed, is what actually protects your real cash flow.