Cash Flow Real Estate: What Is Actually Left

Rent is not income. What reaches you is rent minus mortgage interest and principal, property tax, insurance, maintenance, management, and the months with no tenant. Most deals that look positive on a spreadsheet fail on the last three.

Vacancy is the one that surprises people. A single empty month costs roughly 8% of the year's rent, and turnover brings cleaning, repairs and letting fees with it. A model without a vacancy allowance is not a model.

• Direct ownership — highest control, highest workload. Passive only once you pay a manager, which typically costs 8–12% of rent and turns a marginal deal negative.
• Syndications and private funds — genuinely passive, and you are trusting an operator you cannot easily replace. Fees and the sponsor's incentives deserve more attention than the projected return.
• REITs — liquid, diversified, priced daily. You get property income with stock-market volatility, which is a real trade-off in both directions.
• Lending against property — you are the bank rather than the owner. Contractual interest, no tenants, no appreciation, and the collateral is the property if it goes wrong.

1. Net operating income — annual rent minus every operating cost, before financing. This is the property's own performance, independent of how you paid for it.
2. Cash flow after debt service — what actually lands in your account each month once the loan is paid.
3. Break-even occupancy — how full the property must be to cover its costs. Above 90% and you own a very fragile deal.
4. The rate stress test — what the payment becomes if you refinance at a materially higher rate than today's.

When the deal only works with full occupancy, when you cannot fund a major repair without selling, when the return depends on the price rising, or when your income already depends on the local economy the property sits in. Any of those, and lending against property gives you much of the income with far less of the exposure.