Net Income and Distributions Calculation

[Jordan Burnett]

Pardon my ignorance, but in reviewing some income statements for investments I'm trying to make sense of some napkin math concerning Net Income and Distributions. 

For distributions to occur for a multifamily property, do those distributions have to come out of Net Income after mortgage/debt expense? I assume this has to be true, but wanted to verify whether or not this thought process makes sense when reviewing an Income Statement or if it's more complicated due to behind the scenes stuff or accrual accounting vs cash accounting. 

When an operator is looking at whether or not to make distributions, wouldn't the Monthly Net Income have to be equal to ([Investor Equity x Distribution Percentage] / 12) ? 

I.e. if Investor Equity = $1,000,000.00 and the preferred return or cash on cash distribution is equal to 7%, wouldn't the property's net income need to be equal to $5833.33/month to justify a distribution? 

Thanks in advance! 

[Account Closed]

How often you want a distribution is up to the owner. I would not base the decision off of the net income as this is only one month of financial reporting income minus expenses. Also - in accounting contributions/distributions are a balance sheet item, and some income statement formats do not show distributions.

 Its best to take into account your month ending cash balance(shown on a general ledger) then subtract mortgage, monthly expenses and any expenses that are one off expenses that you may expect to incur(replacing A/C unit or other large items, even if not for a few months) and any other cash reserves you want to keep on hand - then take out your distribution amount.

Basically, getting into the basics of accounting, your net income is NOT your cash balance. Its the difference of income vs expenses in a given time period. Hope this helps.