CapEx (Capital Expenditures)
Spending on major components that extend a property’s life or add value — roofs, HVAC systems, water heaters, full renovations — as opposed to routine repairs and upkeep. Investors typically budget a recurring reserve for capex even in years when nothing is replaced. Most analyses treat capex separately from operating expenses, so it sits below NOI.
Related terms
Operating Expenses
The recurring costs of running a property: property taxes, insurance, management, routine maintenance, utilities the owner pays, and similar line items. Operating expenses exclude mortgage payments and capital expenditures. Subtracting them from income yields NOI, so what counts as an operating expense directly shapes every metric built on it.
NOI (Net Operating Income)
A property’s income minus its operating expenses, calculated before loan payments, income taxes, and capital expenditures. NOI isolates how the property itself performs, independent of how it is financed or owned. It is the numerator in cap rate and DSCR, which makes it the backbone of most income-property analysis.
Cash Flow
The money left over after all of a property’s bills are paid from its income — operating expenses, loan payments, and reserves. Positive cash flow means the property pays for itself with margin; negative cash flow means the owner feeds it. Cash flow is the recurring return, distinct from appreciation and tax effects.