What Cash Flow Is

Cash flow is simply the money remaining after a rental’s income covers its expenses. If a property brings in more than it costs to own and operate each month, it has positive cash flow; if it costs more than it earns, the cash flow is negative. Positive cash flow means the property puts money in your pocket rather than taking it.

Calculating It Honestly

To calculate cash flow, subtract all expenses from rental income. Expenses include the mortgage payment, property taxes, insurance, maintenance and repairs, property management (if used), HOA fees, and a realistic allowance for vacancies. Leaving out expenses — a common beginner mistake — produces a misleadingly rosy number. Honest, complete accounting is essential.

Why Positive Cash Flow Matters

Positive cash flow provides ongoing income and a cushion against vacancies, repairs, and surprises. A property that only makes sense if it appreciates is a riskier bet than one that pays its way monthly. Many experienced investors prioritize cash flow precisely because it reduces risk and provides returns regardless of what the market does.

Using Cash Flow to Evaluate Deals

Cash flow is a primary tool for comparing and evaluating potential rentals. Running the numbers on each property — realistically — tells you which deals work and which don’t. Combined with consideration of appreciation potential and your goals, cash flow analysis is how investors separate sound opportunities from poor ones.

Frequently Asked Questions

Cash flow is the honest test of a rental — a property that pays its way monthly is a far sounder investment than one betting on appreciation alone.