Cash Flow Property
A rental property where monthly income consistently exceeds all operating expenses, delivering positive net cash returns.
What is Cash Flow Property?
A cash flow property is a rental real estate investment in which the monthly gross rental income exceeds all associated expenses—mortgage principal and interest, property taxes, insurance, vacancy allowance, maintenance reserves, property management fees, and HOA dues—leaving the owner with positive net cash flow each month. Investors calculate cash-on-cash return (annual pre-tax cash flow divided by total cash invested) to compare cash flow properties. Markets with lower price-to-rent ratios typically produce better cash flow but lower appreciation potential; high-appreciation markets (coastal cities) often produce negative monthly cash flow. The 1% rule of thumb suggests that a property renting for at least 1% of its purchase price per month is likely to cash flow positively under typical financing assumptions.
Example
An investor purchases a duplex in a Midwest market for $180,000, putting 25% down ($45,000) and financing $135,000 at 7.0% over 30 years (monthly P&I: approximately $899). Each unit rents for $900/month (total: $1,800). Monthly expenses: mortgage $899, taxes $200, insurance $100, vacancy reserve $90 (5%), maintenance $100, management $144 (8%) = $1,533 total. Monthly net cash flow: $1,800 − $1,533 = $267, or a cash-on-cash return of approximately 7.1% annually on the $45,000 cash invested.
Source: National Association of Realtors — Investment Property Research