- Begin with the Net Operating Income of the property.
- Subtract the money out for debt service. This is the amount spent for the entire mortgage payment, interest and principle.
- Subtract any capital expenditures. This would be money spent for improvements on the property, whether they are deductible that year or not. This is actual cash spent.
- Add any loan proceeds. This is the money borrowed on a loan other than the original mortgage. If you made capital improvements, but took out a loan to pay for it, put that loan amount here as an addition.
- Add any interest earned. Should the property have loans or investments out that provide cash in as interest, add that in here.
- You have now come to the result, which is the Cash Flow Before Taxes (CFBT) for this property. Here's the line itemization:
Begin with Net Operating Income
- Subtract Debt Service
- Subtract Capital Improvements cash out
+ Add Loan Proceeds for loans to finance operations
+ Add back any interest earned
= Cash Flow Before Taxes