These are the core investment metrics landlords use to judge how well a rental performs: cash flow, net operating income (NOI), cap rate, and gross yield. They measure the economics of the property. They are distinct from the tax figures on Schedule E — for example, depreciation reduces taxable income but is not a cash outflow, so it affects your tax result without directly affecting cash flow.
This is educational — it is not tax advice, nor investment advice. Confirm specifics with a qualified professional; for the tax side see IRS Publication 527.
Cash flow is what's left each month after all costs including the mortgage. NOI, cap rate, and gross yield measure the property itself and exclude your mortgage. Estimates only — your actual rent, costs, and value will vary.
Each metric answers a different question:
Notice what is included where. Mortgage payments reduce cash flow but are excluded from NOI and therefore from cap rate — which is why two owners of identical properties can have very different cash flow (based on their loans) yet the same cap rate. Gross yield is the roughest measure because it ignores operating costs.
For example (round, clearly hypothetical numbers): a rental is worth $300,000 and collects $30,000 in annual rent. Operating expenses (taxes, insurance, management, maintenance) run $12,000, and mortgage payments are $14,000 for the year.
Same property, four different lenses. Cap rate reflects operations, cash flow reflects your loan, and gross yield is the back-of-envelope screen.
Keep these separate from tax outcomes: a property can show positive cash flow while reporting a tax loss (because of depreciation), or vice versa.
Cash flow is money in your pocket after all costs including the mortgage; NOI and cap rate measure operating performance regardless of financing; gross yield is a quick screen. These investment metrics are distinct from the tax figures on Schedule E — use each for what it measures.
Educational only — these are investment metrics, not tax or investment advice. Confirm specifics with a professional and see IRS Publication 527 for the tax side.