What is the definition of cash flow?

Cash flow is defined as the actual cash, or spendable income, that remains after all necessary expenses and debt service are deducted from the gross income of an investment. This definition is crucial for understanding how profitable an investment property is, as it reflects the real financial benefit to the owner after all obligations have been met.

Gross income encompasses all revenue generated by the property, such as rent from tenants, while expenses include operational costs, maintenance, taxes, and any other financial commitments like mortgage payments. The resulting cash flow is vital for assessing the financial health of the property and determining its ability to generate ongoing income, making this concept essential in asset management.

The other choices address different aspects of real estate finance, but they do not capture the full definition of cash flow. For instance, subtracting vacancy and credit loss from gross potential income focuses solely on income without considering expenses, while valuing an investment at the end of a holding period pertains to exit strategies rather than cash flow during ownership. Additionally, the adjustment to current market value refers to an appraised value rather than the operational income or cash flow calculation.