what is cash flow

In Selling Property - Asked by Kenny S. - Aug 12, 2011
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Answer(s)

Alan E.
Broker/Agent
Saint Petersburg, FL

Cash flow is the revenue being generated from an investment. In commercial real estate, it’s the rental revenue being generated by a property, and is a necessary component for determining a property’s value.

Aug 13, 2011
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Anthony M.
Broker/Agent
Sarasota, FL

Gross Cash Flow or Gross Revenue is the total amount received before deductions. Once you take out expenses such as management, operating expenses, and debt service, you have Net Cash Flow. That is usually a pre-income tax calculation. These names are used loosely and peoples detriment. The differene between Net Cash Flow and Net Income after Debt, is that Net Cash flow deducts amortization and Net Income deducts depreciation. They may be similar but in the case of a 15 year loan as opposed to a 39 year life, the number can be quite different.

Aug 14, 2011
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Rob M.
Broker/Agent
Seymour, IN

Hello Kenny,
You have good question as there are really two cash flows to evaluate, 'before tax' and 'after tax'. Before Tax Cash Flow is calculated by subtracting Vacancy and Expenses to determine Net Operating Income as step one. The second step is to subtract the Loan Payment on the investment to determine the Before Tax Cash Flow. After Tax Cash Flow is calculated by subtracting Depreciation, Loan Interest and Income Tax on the property.

Aug 22, 2011
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Glen W.
Lender/Mortgage Broker
Atlanta, GA

when thinking about cash flow, you need to differentiate net vs gross, your net is after all your expenses which is critical to understand the true value of the property. I've seen many instances where folks have excellent gross income, but their net after expenses is terrible. Be careful to differentiate between the two in order to make an informed decision

Aug 24, 2011
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Drew R.
Owner/Investor
Austin, TX

In short, it is NOI less mortgage payment and capital expenses.
Start by calculating a property’s projected net operating income (NOI) for the twelve months (or often multiple years) following the acquisition. NOI is the anticipated revenues, less only expenses related to the operation of the property.
Depreciation, mortgage debt service payments (both interest and principal), income taxes and capital expenditures aren’t included in NOI. Why? Because with a good estimate of the property’s NOI, you can determine the following: what the property is worth, the amount you can borrow, the equity required, and ultimately, cash flow. See blog link below for more detail and examples.

Nov 1, 2016
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