How this number is made
Cash flow is the rent you are likely to collect, minus the costs you pay whether or not the unit is full, minus the mortgage. Vacancy is a percent of rent held back. It is not a year when the unit actually sat empty. Taxes and repairs belong in the other monthly costs unless you want them separate.
- Other monthly costs should include tax, insurance, and a repair allowance, divided by 12 if you think of them yearly.
- The mortgage is principal, interest, and anything else the servicer drafts.
Formula
Collected = rent × (1 − vacancy). Cash flow = collected − other costs − mortgage.
Worked example
With the figures already in the form, monthly cash flow is $106.00.
Questions
Where is the cap rate?
On the cap-rate page, which uses net operating income and ignores the mortgage. Cash flow includes the mortgage on purpose.
Should vacancy be zero if it is rented?
You can set it to zero. Leaving a few percent is how you admit the next gap between tenants.