Question 1

What is rental property cash flow?

Accepted Answer

Cash flow is the money remaining after all property expenses and mortgage payments are paid from rental income. Formula: Cash Flow = Effective Gross Income − Operating Expenses − Debt Service. Positive cash flow means the property earns more than it costs each month.

Question 2

What is considered good cash flow on a rental property?

Accepted Answer

Most investors target at least $100–$300 per unit per month in net cash flow. On a percentage basis, a cash-on-cash return of 8–12% is generally considered strong. Markets with high appreciation potential often accept lower cash flow in exchange for equity growth.

Question 3

What expenses are included in cash flow calculation?

Accepted Answer

Operating expenses include property taxes, insurance, property management fees (8–12%), repairs and maintenance, HOA fees, utilities (if landlord-paid), and vacancy allowance. Mortgage principal and interest are subtracted after NOI to arrive at cash flow.

Question 4

What is the difference between cash flow and NOI?

Accepted Answer

NOI (Net Operating Income) is income minus operating expenses, before any mortgage payments. Cash flow subtracts the mortgage payment from NOI. NOI is used to evaluate the property itself; cash flow reflects your actual money in pocket each month.

Question 5

How does vacancy affect cash flow?

Accepted Answer

Vacancy directly reduces effective gross income. A 5% vacancy on $2,000/month rent costs $1,200/year in lost income. Most investors budget 5–10% vacancy even on currently occupied properties as a buffer against future turnover and collection losses.

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