Cash Flow vs Profit: Why Investors Get Confused
- Feb 4
- 2 min read
Updated: Feb 4
Many property investors believe they are doing well because their property shows a profit on paper. Others panic because their bank balance feels tight even though their numbers look healthy. This confusion often comes from not understanding the difference between cash flow and profit.
Cash flow refers to the real money moving in and out of your bank account, while profit reflects taxable performance after accounting adjustments
What is Cash-flow in Property Investing?
Cash flow is about the actual movement of money in and out of your bank account.
It looks at:
Rent received
Loan repayments
Rates, insurance and maintenance
Property management fees
If more cash comes in than goes out, your property is cash flow positive. If more goes out than comes in, it is cash flow negative.
Cash flow determines whether you can comfortably hold a property from month to month.
What Is Profit for a Property Investor?
Profit measures income after expenses, including non-cash deductions.
It includes:
Rental income
Operating expenses
Interest costs
Depreciation deductions
Because depreciation is a non-cash expense, a property can show a tax loss while still putting money in your pocket.
Profit affects how much tax you pay, not how much cash you have available today.
Why Investors Often Get Confused
Investors usually focus on one number and ignore the other.
Common reasons for confusion include:
Seeing a tax loss and assuming the property is performing poorly
Ignoring depreciation when assessing performance
Relying on bank balance instead of proper reports
Not separating personal and investment finances
A property can be cash flow positive and still show a tax loss, or cash flow negative while reporting a profit.
This misunderstanding often leads investors to sell too early or overextend financially.
How to Look at Both Together
Strong investment decisions come from understanding both cash flow and profit.
Best practice includes:
Tracking monthly cash flow to manage affordability
Reviewing profit annually for tax planning • Using depreciation to improve after tax outcomes
Planning buffers for periods of vacancy or repairs
Cash flow keeps you in the game. Profit determines your long-term outcome.