A small multifamily property generates 50,000 in rental income with expenses of 45,000 annually, including 35,000 in debt service. The property appreciates about 25,000 a year. What is the property’s cash flow?

A small multifamily property generates 50,000 in rental income with expenses of 45,000 annually, including 35,000 in debt service. The property appreciates about 25,000 a year. What is the property’s cash flow?

• A. 5,000
• B. 20,000
• C. 25,000
• D. 15,000

Answer: (A)

Cash flow from a property is what remains after paying all cash expenses, including debt service. First separate operating expenses from debt service: total expenses are 45,000 and debt service is 35,000, so operating expenses = 45,000 − 35,000 = 10,000. Net operating income (NOI) = rental income minus operating expenses = 50,000 − 10,000 = 40,000. Then subtract debt service to get cash flow: 40,000 − 35,000 = 5,000. The 25,000 in appreciation is a non-cash gain and does not affect cash flow this year. So the property’s cash flow is 5,000. If you ever need total return including appreciation, you’d add 25,000 to the cash flow for a total of 30,000.

Cash flow from a property is what remains after paying all cash expenses, including debt service. First separate operating expenses from debt service: total expenses are 45,000 and debt service is 35,000, so operating expenses = 45,000 − 35,000 = 10,000. Net operating income (NOI) = rental income minus operating expenses = 50,000 − 10,000 = 40,000. Then subtract debt service to get cash flow: 40,000 − 35,000 = 5,000. The 25,000 in appreciation is a non-cash gain and does not affect cash flow this year. So the property’s cash flow is 5,000. If you ever need total return including appreciation, you’d add 25,000 to the cash flow for a total of 30,000.