Cash Flow
The money left over in a period after operating expenses and debt service (and other cash outlays you model) are paid — what actually accumulates in or leaves the investor's pocket. The core "does this deal pay me?" metric for financed STRs.
Definition
What is Cash Flow?
In real estate investing, cash flow usually means cash flow before income taxes: rental collections plus other cash income, minus operating expenses, minus debt service (principal and interest on the mortgage), minus reserves or one-off capital items you choose to model. For short-term rentals, collections swing seasonally, so annual or trailing-twelve-month cash flow is more stable than any single month.
Cash flow is not the same as taxable income. Depreciation and other non-cash items affect your tax return but not your bank account the same day. Conversely, loan principal paydown is not an expense on your P&L but is a use of cash. When Chalet labels a property "cash-flow positive" or "negative," it is referring to this practical, after-debt picture for a modeled scenario — not appreciation or equity build.
Positive cash flow gives you optionality: you can weather vacancies, reinvest in the asset, or compound into the next deal. Negative cash flow can still be acceptable if the investor is deliberately buying appreciation or tax benefits — but that should be intentional, not a surprise from optimistic rent assumptions.
Formula
Cash Flow ≈ Collected Rent − Operating Expenses − Debt Service − Modeled Reserves
Real-world example
Scenario
A financed STR collects $72,000 in guest payments over a year. Operating expenses total $28,000. Annual mortgage payments are $26,000.
Calculation
Cash flow = $72,000 − $28,000 − $26,000 = $18,000 for the year.
Result
About $1,500/month positive before income taxes. If the same property were modeled all-cash, cash flow would jump by the amount of mortgage principal and interest — illustrating why financing dominates STR cash outcomes.
Why it matters for STR investors
Cap rate and gross yield tell you how the property performs as an asset. Cash flow tells you how the deal performs for you, with your financing and your expense stack. Most STR investors live in the cash-flow layer day to day.
Key points
- After operating expenses and debt service for the most practical investor view
- Volatile month to month in STR — use annual or TTM for decisions
- Not the same as NOI (NOI is before debt service)
- Not the same as taxable income (depreciation and principal matter differently)
- Stress-test with lower occupancy and higher maintenance before you buy
Related terms
Chalet tools
