Calculating Cash Flow vs Downpayment

[Ken15]

What is the "norm" when it comes to calculating cash flow vs. downpayment? i.e. What downpayment is used when calculating cashflow? If any????

I know some people use zero downpayment and 100% financing (i.e. Invst4profit) to calculate cashflow.... is that how everyone is doing it???? Obviously you can make any property cashflow with a large downpayment is this ideal though???? Is there a minimum or maximum downpayment to use when calculating cash flow??

Thanks,
Ken

 

[markl]

Hi Ken,

I use a CCR cash on cash return to tell me how good the investment is. It is simply yearly cash flow divided by your total investment I also include my closing costs and any initial improvements to the property. I like to have at least a 10% cash on cash return. In a market like todays where cash is Queen as Thomas says I need to know I am making the best return on m money. If I am not making 10% there are other vehicles out there where I can make more CCR but perhaps not appreciation.

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Regards,

 

[ekisielewski]

QUOTE (Ken15 @ Mar 2 2009, 06:31 AM) What is the "norm" when it comes to calculating cash flow vs. downpayment? i.e. What downpayment is used when calculating cashflow? If any????

I know some people use zero downpayment and 100% financing (i.e. Invst4profit) to calculate cashflow.... is that how everyone is doing it???? Obviously you can make any property cashflow with a large downpayment is this ideal though???? Is there a minimum or maximum downpayment to use when calculating cash flow??

Thanks,
Ken


Hi: Generally speaking I believe you are supposed to use the min dowmpayment amount required for a standard ( non-insured) mortgage. Therefore, you should be using 20% now. And, then you can decide whether you are going to put dowm more or less money and you change your calculations accordingly.

This is the only way of comparing apples to apples; since different investors will have different strategies.

Good Luck!
Elisabet

 

[Thomas Beyer]

QUOTE (Ken15 @ Mar 2 2009, 06:31 AM)
What is the "norm" when it comes to calculating cash flow vs. downpayment? i.e. What downpayment is used when calculating cashflow? If any????



I know some people use zero downpayment and 100% financing (i.e. Invst4profit) to calculate cashflow.... is that how everyone is doing it???? Obviously you can make any property cashflow with a large downpayment is this ideal though???? Is there a minimum or maximum downpayment to use when calculating cash flow??


It depends on your preferences !



Some people like higher returns and go in fully levered, at the risk of low to no to negative cash-flow AND higher downside if markets correct like they did from 2007 to today (it is not over yet !)



Some people prefer strong cash-flow, and thus are less levered, but an overall lower return in "normal" markets.



On average, in a market that rises with inflation, say 6%, being levered makes sense as the overall return is higher, but at the expense of cash-flow.



In this post, on Calgary's 50 Year house price view: http://myreinspace.com/rein_members_only/Members-Only_Discussion/81-6621-50_Year_Calgary_House_Price_View.html

I have attached a matrix on returns given different leverage and different value growth assumptions ("musings" .. page 4 and 5)



Other related posts:



5 ways to make money http://myreinspace.com/public_forums/General_Discussion/61-3347-5_ways_to_make_money.html



How to get started http://myreinspace.com/public_forums/General_Discussion/61-4391-How_to_get_started_.html

 

[invst4profit]

Although it boils down to individual preference does paying down a mortgage truly create cash flow.
Yes probably but does it increase your overall investment income.

You are taking your money and move it from one investment to another. If it earns more income by paying down the mortgage you have some positive cash flow but you must keep in mind you removed that money from somewhere that it was already earning it`s keep.
To me the only true positive cash flow is the difference between the two income streams.

Some look at investments on a individual bases others prefer to look at the whole picture. It depends on your business structure. Return on investment is probably a better yardstick.
Pay down as much as you want but be realistic about your true cash flow.

Forcing the numbers by paying down a mortgage does not create true positive cash flow.

 

[NorthernAlex]

QUOTE (markl @ Mar 2 2009, 08:57 AM) ..... In a market like todays where cash is Queen as Thomas says ....

Close! Thomas says: Cash is king, Cash Flow is Queen!

 

[housingrental]

Most investors that I talk to assume 20-25% down payment unless commercial

 

[Thomas Beyer]

QUOTE (NorthernAlex @ Mar 2 2009, 11:38 AM) Close! Thomas says: Cash is king, Cash Flow is Queen!

hey .. someone is listening .. I am impressed !