Cash Flow
The money left over each month after all property-related income and expenses are accounted for.
Definition
Cash flow is the net income a rental property generates after all expenses are paid. Positive cash flow means the property is producing money; negative cash flow means the investor is subsidizing the property out of pocket each month.
Gross Rent − Vacancy − Operating Expenses − Debt Service = Monthly Cash Flow. Operating expenses include property taxes, insurance, management fees, maintenance and repairs, utilities (if owner-paid), HOA fees, and capital expenditure reserves.
A common mistake is underestimating expenses. Many new investors use the '50% Rule' as a quick screen: roughly 50% of gross rent will be consumed by operating expenses (excluding mortgage). The other 50% covers debt service, and what remains is your cash flow. This isn't a precise tool, but it prevents dangerous optimism.
Cash flow is the lifeblood of a rental portfolio. Even a modest $200/month positive cash flow provides a cushion for unexpected repairs and gives the investor staying power to ride out market downturns without being forced to sell.
Related Terms
Net Operating Income (NOI)
A property's total income minus all operating expenses, before mortgage payments and taxes.
Cap Rate
Capitalization rate — the ratio of a property's net operating income to its market value.
Debt Service
The total cash required to cover loan payments — both principal and interest — over a given period.
PITI
Principal, Interest, Taxes, and Insurance — the four components of a monthly mortgage payment.
Vacancy Rate
The percentage of available rental units or space that is unoccupied at a given time.
Pro Forma
A financial projection document showing expected income, expenses, and returns for an investment property.
Related Article
How to Analyze a Small Multifamily Property (Duplex to 8-Unit)
9 min · Multifamily
Also in "C"
Cash-on-Cash Return
Annual pre-tax cash flow divided by total cash invested, expressed as a percentage.
Closing Costs
Fees and expenses paid at settlement when a real estate transaction is finalized.
Comparable Sales (Comps)
Recent sales of similar properties used to estimate the market value of a subject property.