What Is Cash Flow?
Cash flow is the money left over from a rental property's income after paying all operating expenses and debt service — positive cash flow means the property generates more than it costs to run and finance.
Cash Flow in plain English
Cash flow is what is left from a rental's income after paying every operating expense and the mortgage. It is the money that actually reaches your bank account - or, if negative, the amount you must add each month.
Most investors also set aside a reserve for big replacements before calling the result cash flow, because those costs are certain to arrive.
Formula
Cash Flow = NOI − Debt Service- NOI
- Net operating income: rent collected minus operating expenses, before the mortgage.
- Debt Service
- All loan payments for the period - principal and interest.
Related forms: Cash Flow after reserves = NOI − Debt Service − Capital Reserve.
Pre-tax: income taxes and depreciation are not included.
Worked example
From NOI to cash flow on a $320,000 rental
Illustrative example - round numbers, not current market data. Calculated with Reaixo's calculator engines.
Assumptions
- Rent
- $2,800 a month
- Vacancy and credit loss
- 5%
- Operating expenses (tax, insurance, repairs, management)
- $9,600 a year
- Loan
- $240,000 (75% of $320,000) at 7.00%, 30 years
- Capital-expenditure reserve
- $2,400 a year
| Step | Calculation | Result |
|---|---|---|
| 1. Gross potential rent | $2,800 × 12 | $33,600 |
| 2. Net operating income | $33,600 − $1,680 vacancy − $9,600 expenses | $22,320 |
| 3. Annual debt service | $1,596.73 × 12 | $19,161 |
| 4. Cash flow before reserves | $22,320 − $19,161 | $3,159 |
| 5. Cash flow after reserves | $3,159 − $2,400 | $759 |
Annual cash flow after reserves: $759. The property produces $22,320 of NOI - a healthy-looking number - but after the mortgage and a realistic reserve the owner keeps $759 a year ($63 a month). NOI describes the property; cash flow describes this owner's deal.
What this calculation leaves out
- Pre-tax: income taxes and depreciation are not included.
- A different loan (more down, a lower rate, interest-only) changes cash flow but not NOI.
- Reserves are an estimate; some investors deduct them before NOI, others after. State which you use.
Try it: Cash Flow with your own numbers
Interactive and illustrative: change any value and the results update instantly in your browser. The figures come from the same engines as REAIXO's full calculators.
From rent to cash flow: the NOI waterfall
Gross rent shrinks at every step: vacancy, operating expenses, the mortgage and reserves. NOI is the property's income before financing; cash flow is what you keep.
- Net operating income
- $23,454
- Per year, before the mortgage
- Estimated cash flow
- $3,064
- $255 a month
- Cap rate on the price
- 7.33%
Show the numbers as a table
| Step | Per year | Per month |
|---|---|---|
| Gross scheduled income | $36,000 | $3,000 |
| Vacancy and credit loss | −$1,800 | −$150 |
| Effective gross income | $34,200 | $2,850 |
| Operating expenses | −$10,746 | −$896 |
| Net operating income | $23,454 | $1,955 |
| Debt service (principal and interest) | −$18,680 | −$1,557 |
| Capital-expenditure reserve | −$1,710 | −$143 |
| Estimated cash flow | $3,064 | $255 |
Formula
Effective gross income = Gross scheduled income − VacancyNOI = Effective gross income − Operating expensesCash flow = NOI − Debt service − Capital-expenditure reserveAssumptions
- 30-year fixed loan, no points; one unit with no other income, HOA or utilities.
- Vacancy is taken off gross rent; management, maintenance and the capital-expenditure reserve are a share of collected rent.
- The capital-expenditure reserve sits below NOI: it is cash set aside, not an operating expense.
- Income taxes, depreciation and appreciation are left out.
Why it matters
Thin cash flow leaves no room for a vacancy or repair. A property can show healthy NOI and still lose money each month if it is heavily financed.
What it means for you
What investors should know
Judge a deal on cash flow after reserves, then on cash-on-cash return.
Common mistakes
- Leaving out vacancy and capital reserves.
- Treating principal paydown as cash flow.
- Using the seller's rent roll without verifying it.
Compare and common questions
Cash Flow: frequently asked questions
What is good cash flow for a rental property?
There is no universal target. Enough to cover reserves and leave a margin after a vacancy or repair is the practical test, alongside your return on the cash invested.
Is cash flow the same as profit?
No. Cash flow ignores appreciation, principal paydown, depreciation and income taxes, all of which affect your overall profit.
How can I increase rental cash flow?
Raise rent to market at renewal, reduce turnover and vacancy, cut operating costs, or lower debt service through a larger down payment or better loan terms.
Where it fits
- Investing, Leasing & Operations: before this, Property Management Fee; next, Section 8.
More Investing Terms
Recommended next step
Model income, expenses, reserves and the loan in one place.
Rental cash flow calculator →Sources and review
No regulator defines this term; the page follows common industry practice.
Where this applies: Not regulated. Investment ratios and budgeting conventions are industry practice; lenders and analysts may define inputs differently.
Last reviewed: · Updated:
Examples use illustrative figures; rules of thumb are labelled as such. Rates, limits and program rules change - confirm current figures with your lender or a qualified professional.
This definition is provided for general educational purposes and is not financial, legal, tax, or real estate advice. Verify important decisions with appropriately qualified professionals.
Apply these investment calculations to a real property
Run the numbers with the free calculator, or get a property-specific analysis built on the same calculations.
- Free calculatorRental Cash Flow Calculator →Runs in your browser; nothing to sign up for.
- Paid reportCash Flow Analysis →Model your monthly income and expenses on any rental property. Price shown before checkout.
Or analyze a specific property: Essential Property Analysis, $19 · Property Decision Analysis, $49 · Professional Property Analysis, $99. You choose the depth before you pay.