Can someone help me analyze a deal? i dont understand cash flow.

[Jim Growfer]

how can i tell my broker that i am looking for a specific CoC % if they dont know what im using for funding?

Doesnt CoC strictly have to do with your debt ratio and DSCR?

[Llewelyn A.]

@Jim Growfer

I think there needs to be an explanation on what NOI is and what Cash Flow is because it seems people are confused at the standard definition.

Let's say 2 Buyers will buy a property, 100 Main Street.

The Annual Rents are $10k.

Expenses are Taxes, Insurance, Heating, Electrical, Water/Sewage and Maintenance. that adds up to $4k per year.

Everyone agrees that the income of the property is $10k minus $4k = $6k per year or $500 per month.

We call that income the NET OPERATING INCOME.

Buyer 1 buys this property all cash. His NOI = $6k per year. He makes $500 per month income which is the same as his "Cash Flow."

Buyer 2 buys this property, but with a Mortgage. Let's say his Mortgage Payment is $500 per month which is $6k per year.

NOW, Buyer 2's NOI is EXACTLY the same as Buyer 1's which is $6k per year.

BUT..... we all have to agree that Buyer 2, while receiving $500 per month in income, gets ZERO because he must then pay the $500 to the Mortgage. Buyer 2's CASH FLOW is ZERO.

This example clearly shows that:

1) the NOI for a property is always the same no matter who buys it

2) The Cash Flow differs because of the Finance of the Buyer. In this example, Buyer 1 has a cash flow of $500/month but Buyer 2 has ZERO cash flow.

This is exactly why I tell my Real Estate Investing Students that

"It's Not the Property that Cash Flows.... it's the INVESTOR that cash flows the Property."

I really don't understand how I hardly see ANY books or Real Estate literature explain this as it's very important.

BTW, the next follow up calculation would be Cap Rate which is your NOI / Purchase Price. You use Cap Rates to figure out which Investment is better than the other.

Eventually, if you go further, you wind up learning Internal Rate of Return (IRR), which really helps you completely understand your investments over the next 10 years.

Hopefully this helps.