Follow the money from rent to cash flow
6 min read · Sources checked October 4, 2026 · Not specialist reviewed
Gross revenue, operating income and spendable cash answer different questions.
Keep the calculation visible. Start with collected operating income, subtract operating expenses, then subtract debt payments and planned replacement funding. Appreciation, depreciation and possible tax benefits are separate from the cash available to pay this month’s bills.
Net operating income
NOI equals effective operating income minus operating expenses. Our model excludes loan payments, depreciation and capital expenditures from NOI. Cap rate is annual NOI divided by purchase price. These measures help describe the property’s operation before financing.
Cash flow and cash invested
Cash flow after replacement funding equals NOI minus principal-and-interest debt service and the planned replacement allocation. Our cash-on-cash calculation divides that amount by down payment, closing costs, strategy-specific setup and the initial reserve. Different tools may use different conventions; compare definitions before comparing percentages.
Find the break-even point
Break-even asks what rent or occupancy covers the modeled costs. STR break-even depends on available nights, nightly rate and net contribution after variable expenses. LTR break-even depends on collected rent after vacancy and percentage expenses. A required occupancy over 100% is unattainable under the entered assumptions.
Collected income of $50,000 minus $20,000 in operating expenses gives $30,000 NOI. Subtract $24,000 in annual principal and interest, then $3,600 in replacement funding: $2,400 remains. Gross income was $50,000; modeled distributable cash is $2,400.
Your next action
Open the calculation breakdown in the Deal Lab. Explain each row in your own words before adjusting the assumptions.
A mistake to avoid
Using expected appreciation or a potential tax deduction to conceal negative operating cash flow.
Sources & further reading
General U.S. educational material. Property-specific rules, tax treatment and suitability need separate verification. See our methodology.