The following is a formula used for analyzing an investment properties cash flow. 

Any property being considered for your portfolio should fit a certain return on investment. 

The Kansas city area has a lot of investment potential right now.  This formula is a powerful way to focus on those with the best return. 

Total Rent = Potential Gross Income (PGI)

PGI - vacancy and collection loss = Effective Gross Income (EGI)

EGI - taxes, insurance, management, maintenance = Net Operating Income (NOI)

Or PGI – 30% = NOI.  (This is the quick formula banks will use to establish NOI without knowing the details of taxes, insurance, etc) 

NOI – debt service (Principal and Interest) = True Cash Flow

NOI / debt service = Debt Coverage Ratio (DCR)

Banks and investors prefer a 1.2 or better for the DCR.  A 1.0  is your breakeven point. 

NOI / Obtainment Price = CAP Rate

Obtainment Price / Rent = Gross Rent Multiplier

Operating Expenses / Sq. Ft. = Operating Efficiency Ratio (smaller the better)

Cash Flow / Cash Invested = Return

NOI / CAP Rate = Value