Building Real Estate Cash Flow

Real estate cash flow generally refers to the income remaining after collecting rent and paying operating expenses, debt service, and reserves for a property. Columbus, OH investors evaluate cash flow using metrics such as net operating income, which measures income after operating expenses but before debt service, and cash on cash return, which measures the annual cash flow relative to the actual cash invested. Building stronger cash flow generally involves a combination of selecting properties with favorable rent to price ratios, managing operating expenses efficiently, and structuring financing with a debt service level the property's income can comfortably support.

For investors holding an existing property with declining or underperforming cash flow, a like kind exchange under Section 1031 can generally be used to reposition capital into a property with stronger income characteristics without triggering capital gains tax or depreciation recapture on the transition. This might mean exchanging out of an aging property with rising vacancy or deferred maintenance and into a newer asset with a more favorable lease structure, or exchanging from a lower yielding asset class into a higher yielding one within the Columbus, OH market or nationally. Because the exchange must be completed within the forty five day identification period and one hundred eighty day exchange period, investors focused on cash flow improvement generally begin evaluating replacement property criteria, including projected net operating income and cash on cash return, before the relinquished property even closes.