Cash flow, sometimes called Operating Cash Flow, is a way to figure out how much money you have in hand from a rental property after deducting all of its costs from the rent it brings in. It’s an important metric because it allows you to see whether the property is covering its expenses or not.
Having a good grasp of cash flows is important because it helps investors understand if the business' assets are increasing or not based on the inflows and outflows. An inflow is when money is when money is moved into the business. An outflow is when money is moved out of the business.
\[ Gross \, rents \, received - Total \, property \, expenses = Cash \, flow \]
If total expenses incurred towards maintaining a rental property is $800 and rent received is $1,200, your cash flow for the month comes to $400. Ideally, you want your cash flow to be a healthy positive. If it’s close to zero or dips below, it’s indicative of a problem that you need to address immediately.