If an investor’s net operating income is less than their annual operating costs, what might that indicate?

When an investor's net operating income (NOI) falls below their annual operating costs, this situation suggests that the income generated from the property is insufficient to cover its expenses. Negative cash flow occurs when the outgoing costs—such as maintenance, property management fees, property taxes, and other operational expenses—exceed the income generated from rental payments and other revenue sources related to the property.

This indicates an unsustainable investment since the investor will need to subsidize the shortfall from other financial resources or risk difficulties in maintaining the property and fulfilling financial obligations. While high rental income, high property value, or a profitable investment may seem attractive, they do not apply in this scenario because the gage of profitability and financial health is specifically focused on whether the income can meet or exceed operational costs. Negative cash flow clearly identifies a problematic financial situation for the investor.