Investment Property - How to Calculate Cash Flow

Annual Net Operating Income is also commonly referred to as Cash Flow. This represents the annual income or loss the investment property actually generates after collecting a year’s worth of rent and paying the annual expenses associated with owning and operating the property. Cash Flow is calculated by subtracting the Annual Total Operating Expenses from the Annual Gross Rental Income.

So, the formula is:

Annual Net Operating Income = Annual Gross Rental Income - Annual Total Operating Expenses

Annual Gross Rental Income - This represents the annual rent you collect on the property. Annual Gross Rental Income is calculated by simply totaling the amount of rent collected per year (12 months) from the tenant occupying the investment property without subtracting any expenses associated with owning and operating the investment property.

Annual Total Operating Expenses - This represents your annual cost to own and maintain the investment property, without taking into consideration any rental income. Annual Total Operating Expenses is calculated by simply totaling all of the expenses that you pay per year (12 months) associated with owning and operating the investment property. Some of these expenses include your mortgage or note payment, insurance, management fees, taxes, utilities (if not paid by the renter), and HOAs.

It’s important to note that there are two types of cash flow: positive and negative. A positive cash flow is where an investor generates income beyond the rental income less expenses on an annual basis. A negative cash flow is where there is no income, but a loss after annual operating expenses are deducted from annual rental income.