DIfference between cash flow and noi

[Jon Deavers]

Hello all,

I have a pretty basic question but couldn't find a concise answer posted.

What's the difference between net operating income and cash flow (as used in an REI context)?

My understanding is that cash flow is a monthly measure of income after expenses and NOI is more of an annual measure, but wanted to be sure.

Thanks for the clarification!

[Shane Woods]

Howdy! NOI can be simply calculated by gross rents - expenses (vacancy, mgmt, maintenance/repairs, taxes, insurance)

NOI does not take into account mortgage payments, and this is where it differs from cash flow.

If you have a mortgage on the property, your cash flow is NOI - PI (Principal+Interest payment).

If the property is free and clear, your NOI is also your cash flow, as noted above.

Here's an easy example both ways:

Pay cash for house-

Rent is $1000/month

Estimate expenses to be 50% = $500/month

NOI = 1000 (rent) - 500 (expenses)

NOI = $500/month

Cash Flow = 500 (NOI)

House with mortgage, Principal+Interest payment is $400/month

Rent is $1000/month

Estimate expenses to be 50% = $500/month

NOI = 1000 (rent) - 500 (expenses)

NOI = $500/month

Cash Flow = 500 (NOI) - 400 (PI Payment)

Cash Flow = $100/month

Hope this helps.