How landlords make money

Rent is a landlord's sales. In the Rental Housing Finance Survey, the only national survey of rental properties, run by the Census Bureau and HUD, a rental with one home brought in a median of $1,400/month, or $16,800/year. In buildings with two to four homes, each home brought in a median of $1,100/month.

The bills come before the owner sees any of it. The median rental with one home paid $2,847/year in property tax, $1,100/year for insurance and $1,800/year for repairs and upkeep, and $6,613/year to run in all, counting water, the lawn, accountants and managers. Homes in small buildings cost a little less each: $5,286/year.

What's left after running costs, before any loan and before income tax, is called net operating income. Owners in the survey valued their one-home rentals at a median of $250,000, collected a median 6% of that value in rent a year, and kept 4% of the value after running costs. That last share is the cap rate, the first number a buyer looks at.

Most rentals with one home have no loan at all: only 31.9% said they had a mortgage, and 59.8% said they didn't. Many owners bought years ago and have paid it off, so every dollar left after running costs is theirs.

Buying with a loan today is different. Freddie Mac's survey rate for home buyers was 7.24% in late October 2026. A house at the survey's median value, at the median rent, leaves about $743 a month after running costs in our example, against a payment of $1,363 on a loan for all but a fifth of the price. The owner adds about $620 a month.

Our example numbers here are $743, $1,363 and $620; the others come from the sources below.

That isn't all lost. Part of each payment lowers what's owed: $156 of the first one in the example, and a little more every month. That part is equity, the owner's share of the house, which comes back when it's sold. So a rental can cost its owner money every month and still build wealth, as long as the owner can afford the gap. The free lesson lets you try your own numbers.

This number is our example.

Mostly ordinary people. Of rental properties with one home, 59.6% belong to individual investors and 20.6% to limited liability companies and partnerships, often set up by those same people for their rentals. Real estate investment trusts, the large companies in the news, own about 1.2%.

Most owners do the work themselves, too: 50.5% of one-home rentals are run day to day by the owner or someone the owner doesn't pay, for a median of 5 hours a month where the owner manages. A management company runs 22.3%.

A home earns nothing while it sits empty between renters, but the tax, insurance and loan payment don't stop. Nationwide, 7.6% of rental homes were empty and for rent in the third quarter of 2026, by the Census's count.

That's why landlords care so much about keeping a good renter. A small rent increase a renter accepts usually beats a big one that leaves the home empty for a month.

A short-term rental, rented by the night on sites like Airbnb, earns more a night than a year-long lease, and costs more to run. The booking site takes a share: most Airbnb hosts now pay a host-only fee of 15.5% of each booking, while hosts still on its split fee pay 3% and guests pay the rest.

The host also pays for cleaning between guests, whose stays averaged 3.7 nights on Airbnb in 2025, and for the power, internet and supplies a year-long renter would pay. Across the world, Airbnb's bookings came to about $171 a night or seat in 2025, counting cleaning fees, service fees and taxes, so the host keeps less.

Cities set their own rules. New York City, for one, makes hosts of stays under thirty days register with the city, and booking sites may not take bookings for homes that aren't registered.

Buying a rental takes cash beyond the down payment. Freddie Mac says closing costs generally run 2% to 5% of the price: the lender's fees, the appraisal, title insurance, government fees and taxes, and insurance paid ahead. Lenders usually ask for a bigger down payment on a home you'll rent out than on one you'll live in, and many want several months of payments left in the bank after closing.

A buyer then checks two numbers. The cap rate says what the property earns before any loan, as a share of the price. Cash-on-cash says what the buyer's own cash earns after the loan payments. When the cap rate is below what the loan costs each year, borrowing makes the return worse.