Cash Flow refers to the net amount of money that is being transferred into and out of a property investment. This typically includes income generated from the property, such as rental payments, and subtracts any operating expenses and debt service (if applicable).
Positive cash flow occurs when the income generated from a property exceeds the costs associated with its ownership, maintenance, and management. This may include mortgage payments, taxes, insurance, repair costs, management fees, and other expenses.
Negative cash flow, on the other hand, happens when the expenses exceed the income generated from the property. This situation could potentially be unsustainable in the long term, but some investors might still consider it under certain circumstances. For example, if they expect the property’s value to appreciate significantly over time, they may be willing to tolerate negative cash flow for a period.
Cash flow is a critical measure for real estate investors because it provides an immediate indication of the profitability and viability of an investment property. It’s one of the key metrics used in the real estate industry to evaluate and compare investment opportunities.