Cash flow is all of a rental property’s cash inflows less all of its cash outflows.

Think of it as all the money flowing in such as rent, loan proceeds, and interest on bank accounts less all the money flowing out like operating expenses, debt payment, and capital additions and you’ll get the idea.

There are two types of cash flow connected with real estate investment property:

1. Cash flow before taxes (CFBT) which doesn’t take into consideration the owner’s tax liability
2. Cash flow after taxes (CFAT) which does account for tax liability (essentially the cash flow before tax less tax liability).

Both cash flows are important to rental property analysis and should be understood by real estate investors.

Cash Flow Calculation

Net Operating Income
less Debt Service
less Capital Additions
plus Loan Proceeds
plus Interest Earned
= Cash Flow Before Taxes (CFBT)

and,

Cash Flow Before Taxes (CFBT)
less Income Tax Liability
= Cash Flow After Taxes (CFAT)

Okay, now let’s look at the calculation to be sure that we understand its various components. Read the entire article…