Unlevered Cash Flow

Unlevered Cash Flow: In the context of real estate financial modeling, unlevered cash flow, also known as cash flow before financing or free cash flow, is the amount of cash flow generated by a property before considering the costs of debt financing.

Unlevered cash flow is calculated as the Net Operating Income (NOI) minus any capital expenditures required to maintain the property. This represents the cash flow that would be available to equity investors if the property were financed entirely with equity (i.e., without any debt).

The concept of unlevered cash flow is important in real estate financial modeling as it provides a measure of the income-generating potential of a property regardless of its capital structure (i.e., how it is financed). This makes it a useful metric for comparing the profitability of different properties without the distortions that can be introduced by different levels of debt financing.

In addition, unlevered cash flow is the basis for calculating several key investment metrics, such as the unlevered rate of return (or unlevered internal rate of return, IRR) and the property's value using the direct capitalization method (by dividing the unlevered cash flow by the cap rate).