Cap Rate vs Cash Flow: Which Metric Should Guide Your Decision?

Cap rate and cash flow are both essential, but they measure different things. Cap rate tells you how a property performs independently of financing. Cash flow tells you what actually lands in your pocket.

When cap rate matters most

Because cap rate excludes mortgage payments, it is the fairest way to compare two properties in the same market. It isolates the asset's performance from the way you happen to fund it.

When cash flow matters most

Cash flow determines whether you can actually hold the property. A strong cap rate means little if the monthly numbers leave you short after the mortgage, vacancy, and repairs.

• Use cap rate to compare and shortlist properties
• Use cash flow to confirm you can sustain the investment
• Use DSCR to check whether a lender will approve the loan

Run all three before committing. A property should clear every test, not just the flattering one.