How to Analyze Cash Flow Like a Pro

Introduction

Cash flow is the lifeblood of real estate investing. Whether you’re buying a rental property in Fort Lauderdale or a multifamily in Texas, analyzing income and expenses correctly can mean the difference between profit and loss.

Cash Flow Formula

Cash Flow = Rental Income – (Operating Expenses + Debt Service)

Key Metrics to Analyze

1. Gross Rent Multiplier (GRM)

• Property price ÷ gross annual rent.

• Quick comparison tool.

2. Cap Rate

• Net Operating Income ÷ Purchase Price.

• Helps compare investments across markets.

3. Cash-on-Cash Return

• Annual cash flow ÷ Initial investment.

• Measures return on money actually invested.

4. Debt Service Coverage Ratio (DSCR)

• NOI ÷ Debt Service.

• Lenders want 1.2+ to approve loans.

Common Mistakes to Avoid

• Forgetting vacancy allowances.

• Ignoring maintenance reserves.

• Underestimating property management fees.

Example Calculation

• Monthly rent: $4,000

• Expenses (taxes, insurance, HOA, maintenance): $1,200

• Mortgage payment: $2,000

• Cash Flow = $800/month or $9,600/year.

Call to Action

Want help running numbers on your next deal? Contact us for custom cash flow analysis tools and deal review before you invest.