Posts Tagged ‘calculate cash flow’

Calculate Cash Flow Before Committing To A Rental Property

Thursday, January 22nd, 2015

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Investors who are able to calculate cash flow can determine how productive their rental property will be.  When calculating the cash flow of a property, it is important to remain conservative and avoid becoming overly optimistic.  Here we will go over the process of finding a rental property and calculating the profit potential.

Investors who are looking for a rental property realize that they must calculate cash flow before deciding how good an investment is.  The best way to do this is to keep it simple and determine the demand for rental property in a given area.  Regions that have plenty of activity will allow investors to receive a surplus of tenants and keep their rental acceptance standards at a high level.  Those who do so should have plenty of tenants that will allow them to earn the most on their investment.

In general, most property owners assume that they will have 90% of a rental property rented out at any given time.  In this way, investors can properly calculate cash flow in a conservative way that takes into account any issues with tenants or finding tenants.  Investors have to look at their particular area and determine whether a 90% occupancy rate is attainable.

In order to calculate cash flow before purchasing a rental property, it is important to ask a seller for their tax receipts and use the numbers that are quoted when performing calculations.  This will allow investors to obtain a solid understanding of both negative and positive cash flow.  This will also keep a seller honest, giving investors an idea of the profit potential.

Investors who are looking for a simple way to calculate cash flow should assume that 50% of the positive cash flow would end up going to pay for the mortgage.  Receive a quote from a few lending institutions and determine how much the monthly mortgage payment will be.  If 50% of the rental rates have the ability to pay for the mortgage, the chances of a property being successful is greatly increased.

Investors who calculate cash flow should assume that the other 50% of the cash flow would go to cover other expenses and free up a small profit for an investor month after month.  Investors who analyze all of these expenses and determine with certainty that a property is bound to earn a profit should be able to capitalize on their investment.

Investors who are able to properly calculate cash flow should be able to determine the profit potential of a rental property.

Asking questions with these tips in mind will help save real estate investors thousands.  For more ideas related to real estate investing, call or visit us a Homevestorsfranchise.com.  We are the nation’s number one home buying franchise with over 15 years of experience.  Our company has a vast assortment of real estate investment and real estate franchise opportunities available to help you grow your real estate business.  Come see us for more information.

Calculate Cash Flow Before Purchasing A Rental Property

Monday, October 27th, 2014

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There are many ways to calculate cash flow, but the truth of the matter is that anyone of these equations is bound to supply an investor with the information they need.  Ideally, an investor should keep their cash flow calculation simple and get a general idea regarding whether a property is profitable or not.  Here we will go over how to calculate cash flow and decide whether an investment is cash flow positive or negative.

In order to calculate cash flow, we will need an equation and variables having to do with a rental property.  If the solution to an equation demonstrates that we are in the black, a profit is likely to be earned.  Since the only positive cash flow is rental payments, it should be easy to calculate, but never assume that a rental will always be 100% occupied when calculating the cash flow.  On the other side of the coin, negative cash flow will have many different streams.  Investors must account for mortgage payments, maintenance, taxes, and tenant issues.

The most basic equation for being able to calculate cash flow assumes that monthly mortgage payment accounts for 50% of the positive cash flow.  In other words, a rental property that takes in $10,000 a month in rental payments has to have a $5,000 monthly mortgage payment or less in order to even consider it as a profitable option.  At this point, more detailed analysis should be performed in order to determine the other negative cash flow streams.

Those who want to calculate cash flow should be conservative with their numbers.  Always assume that there will be hidden and surprise costs in this business.  Those who are able to calculate these costs into their analysis should be able to determine their potential profits with greater accuracy.

Investors who calculate cash flow should search for properties that pay out an 8% or more return on investment.  This means that 8% of the value of a property should be earned on a yearly basis.  Assuming this to be true, an investor should be able to earn full equity in their property in a little over 12 years.  Investors who stick with their investment for the duration of this time will eventually not have to worry about their mortgage payment anymore, as they will acquire full ownership.  A property will become significantly more profitable at that point in time.

Investors who put in the necessary effort to calculate cash flow before purchasing an investment should have an understanding of their profit margins.

Asking questions with these tips in mind will help save real estate investors thousands.  For more ideas related to real estate investing, call or visit us a Homevestorsfranchise.com.  We are the nation’s number one home buying franchise with over 15 years of experience.  Our company has a vast assortment of real estate investment and real estate franchise opportunities available to help you grow your real estate business.  Come see us for more information.