Cash Flow Calculator Formula

Understand the math behind the cash flow calculator. Each variable explained with a worked example.

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Formulas Used

Annual Before-Tax Cash Flow

annual_cash_flow = net_operating_income - annual_debt_service - capital_reserves

Monthly Cash Flow

monthly_cash_flow = (net_operating_income - annual_debt_service - capital_reserves) / 12

Cash Flow Margin

cash_flow_margin = ((net_operating_income - annual_debt_service - capital_reserves) / net_operating_income) * 100

Variables

VariableDescriptionDefault
net_operating_incomeAnnual NOI(USD)42000
annual_debt_serviceAnnual Debt Service(USD)30000
capital_reservesAnnual Capital Reserves(USD)2400

How It Works

Property Cash Flow

Cash flow is the money left over after paying all operating expenses, debt service, and setting aside reserves.

Formula

Cash Flow = NOI - Debt Service - Capital Reserves

Importance

  • Positive cash flow means the property pays for itself and generates income
  • Negative cash flow requires out-of-pocket funding each month
  • Cash flow funds your reserves, covers unexpected expenses, and provides income

    • Worked Example

    A property has $42,000 annual NOI, $30,000 debt service, and $2,400 in capital reserves.

    net_operating_income = 42000annual_debt_service = 30000capital_reserves = 2400
    1. 01Annual cash flow: $42,000 - $30,000 - $2,400 = $9,600
    2. 02Monthly cash flow: $9,600 / 12 = $800
    3. 03Cash flow margin: $9,600 / $42,000 x 100 = 22.9%

    Frequently Asked Questions

    Is negative cash flow always bad?

    Not necessarily. Some investors accept negative cash flow in appreciating markets, expecting property value gains to outweigh the shortfall. However, sustained negative cash flow is risky and requires cash reserves.

    What are capital reserves?

    Capital reserves are funds set aside for major future expenses like roof replacement, HVAC systems, or appliance replacement. A common rule of thumb is $200-$300 per unit per month.

    Is cash flow before or after taxes?

    This calculator shows before-tax cash flow. After-tax cash flow further subtracts income taxes on rental income (reduced by depreciation and other deductions).

    Learn More

    Guide

    Cash Flow Analysis Guide

    Learn how to analyze cash flow for your business. Understand operating, investing, and financing cash flows, and why profitable companies can still run out of cash.

    Ready to run the numbers?

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