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How to budget for a rental property, month by month

A rental budget tells you, before the year starts, what should come in, what should go out and what's left. Then it tells you, every month, whether you're on track. Here's how to build one.

Updated October 20, 2026 · by Tidy Landlord

Step 1: Budget the rent, month by month

Start with each unit's rent for every month of the year. If a lease renews or rent goes up partway through, change the rent from that month on, and check the rules first: in Ontario, for example, most rents can go up only once every 12 months and with at least 90 days' written notice (Ontario.ca). Other provinces and states have their own rules.

Then take off a vacancy and bad-debt allowance, a percentage for empty months and rent you won't collect. There's no standard figure, so base it on your own history. Market data can help you sanity-check it: the US Census Bureau publishes a national rental vacancy rate (Census Bureau), and CMHC publishes vacancy rates by area in Canada (CMHC). Our vacancy and turnover cost guide shows how to measure your own.

Step 2: List expenses the way the bills come

Every month: utilities you pay, management fees, lawn care, loan payments.
Once a year: insurance, licences, accounting. Spread these over 12 months, or put them in the month you pay.
In specific months: property tax instalments, snow removal in winter, a furnace service in the fall.
Repairs: you can't predict which month the dishwasher dies, so budget an even monthly amount based on past years.

Putting bills in the month they really hit means a big March doesn't look like you're over budget when you're not.

Step 3: Keep the mortgage and capital items separate

Your full mortgage payment comes out of your bank account, so it belongs in the cash-flow budget. For taxes it's different: you can deduct mortgage interest on a rental property (IRS Pub. 527), but in Canada the CRA says you can't deduct repayments of principal (CRA Guide T4036). Big replacements such as a roof or furnace are capital costs, depreciated in the US or claimed as capital cost allowance in Canada rather than deducted all at once. Budget them as capital projects in the month you expect to pay, or set aside a monthly reserve; our CapEx reserve guide shows how to size one.

Also watch prepaid bills: if you pay insurance for more than a year in advance, the IRS lets you deduct only the part that applies to each year (IRS Pub. 527). Your cash budget shows the payment when it leaves; your tax records spread it.

Step 4: Work out NOI and cash flow

Rent budget = monthly rent × (1 − vacancy %).
NOI (net operating income) = income − operating expenses.
Cash flow = NOI − mortgage payments − capital projects.

A worked example

All numbers are made up. One rental at $2,000 a month from January to June and $2,050 from July after a renewal increase, with a 4% vacancy allowance:

Rent: 6 × $2,000 + 6 × $2,050 = $24,300, less 4% = $23,328.
Operating expenses: property tax $4,200 (two instalments), insurance $1,500, repairs $1,800, utilities $600, other $300 = $8,400.
NOI: $23,328 − $8,400 = $14,928.
Mortgage payments: 12 × $900 = $10,800. Capital: $1,500 for a new water heater.
Cash flow: $14,928 − $10,800 − $1,500 = $2,628 for the year, about $219 a month.

Step 5: Compare budget vs actual every month

Each month, enter what really came in and went out, by category, from your bookkeeping. For each category, variance = actual − budget, for the month and the year to date. Then forecast the year: actual so far + the budget for the months left.

In the example, repairs were budgeted at $150 a month. If you've spent $1,400 by the end of June against $900 of budget, you're $500 over, and the forecast for the year is $1,400 + $900 = $2,300, not $1,800. Seeing that in July gives you time to adjust: delay a project, raise the reserve, or plan a rent change for the next renewal.

Small variances are normal. Decide what range counts as on budget (say, within 5% or 10%) and look closely only at the categories outside it.

Common budgeting mistakes

Budgeting 12 full months of rent. Even a well-run rental has the odd empty month or late payer. Leaving out a vacancy allowance makes every year look better on paper than it turns out.
Forgetting the irregular bills. Property tax, insurance renewals and seasonal work are easy to miss when you build a budget from one month's bank statement. Go through last year's statements line by line instead.
No money for big replacements. If nothing is set aside for the roof, furnace or appliances, the year one of them fails becomes a large loss in a single month.
Mixing cash flow and taxes. A budget that treats the whole mortgage payment as a tax deduction, or that deducts a new roof all at once, will give you the wrong idea of your tax bill. Keep a cash budget for planning and let your bookkeeping and tax return follow the tax rules.
Setting it and forgetting it. A budget only helps if you compare it with actuals. Ten minutes a month is usually enough.

Step 6: Use this year to build next year

At year end, your forecast becomes the starting point for next year's budget. Add a growth percentage for costs that rise every year, such as insurance and property tax, check any rent increase against local rules, and you have a draft budget before January starts.

Frequently asked questions

How much should I budget for vacancy on a rental property?

There's no standard number. Base it on your own history of empty months and unpaid rent, and sanity-check it against local vacancy data from the Census Bureau in the US or CMHC in Canada.

Does the mortgage payment go in a rental budget?

Yes, the full payment goes in the cash-flow budget because it leaves your account. For taxes, only the interest is an expense; the CRA says repayments of principal can't be deducted.

What's the difference between NOI and cash flow?

NOI is income minus operating expenses. Cash flow is NOI minus mortgage payments and capital projects, so it's what's actually left for you.

How often should I compare my budget to actuals?

Monthly works well for most landlords: enter actuals by category, check the variance and update the forecast for the year.

Sources

This guide is general information, not financial, tax, legal or accounting advice. A budget is an estimate, and every figure in the worked example is made up to show the method. Tax and rent-increase rules differ by country, province and state and change over time, so check the official sources linked above and ask a tax professional about your situation.

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