newbie question, gross cash flow vs net cash flow

[Gabe G.]

As a new investor. I am more concerned about gross cash flow.

Which is simple rental income - principal-interest-tax-insurance

In the Indiana market I have been shooting for $500 in cash flow per property.

I see most people here are more focused on NOI(net cash flow), while I understand the importance of this, as it is a better guage of actual money coming in the door over the long term(roofs,water heaters,windows) add up over time and take away from cash flow.

Does anybody else focus more on this number? rather than applying the 50 percent rule to get to NOI?

I guess what I'm saying is, you don't necessarily have to drill down to repairs/expenses over the long term. If you are bringing in 850-1000 a month in rental income and taking care of PITI and walking away with 500 each month. The analysis can probably stop there, it makes a good rental atleast by the numbers

Thoughts?

[Jon Holdman]

I call your number (rent - PITI) "phoney cash flow". You're not walking away with that number. Many, many other very real costs will occur that will eat into that money. If you're ignoring the real costs of owning a rental you're setting yourself up to fail.

This number is commonly used by sellers and their agents to lure in naive buyers. Don't be that naive buyer.

This is like a factory owner saying "Raw materials are $50 per widget and I sell them for $100 each, so I must be making money." Never mind it takes a $100 million factory and labor costs of $25 per widget and another $25 in sales and admistrative costs.