Defination of cash flow

[JesseLee]

I try to define what exactly cash flow is and I come up with this formula:

Cash Flow =

(Monthly Gross Income from Property )

minus
(Principal + Interest + Tax + Management + Insurance + Heating + Hydro + Maintenance + Any other expenses )

minus

(Amount of Down Payment * Mortgage Rate / 12 )

Does it make sense?


Jesse

 

[Thomas Beyer]

QUOTE (JesseLee @ Mar 19 2008, 09:42 PM) I try to define what exactly cash flow is

Cash Flow =

(Monthly Gross Income from Property )

minus VACANCIES
minus

(Principal + Interest + Tax + Management + Insurance + Heating + Hydro + Maintenance + Any other expenses )



you may wish to add back principal repayments as they are yours ..

when you SELL .. you substract the investment $s / downpayment (and any closing costs) .. that is called PROFIT (not cash-flow)

 

[GarthChapman]

All the cash in, minus all the cash out = the cashflow. You will usually measure this either monthly or annually.

The down-payment is the original seed capital for that investment, and so does not count in this measure.

When you add in the mortgage principal pay-down then you have what REIN has trademarked as `Cashflow Plus` (nice term).

Then you add in the property value appreciation and what you have is ROI (return on investment).

 

[kenko]

make sure your tenant pays for the utilities....less trouble and increase your cashflow even more.

 

[RedlineBrett]

So some of you guys are including principle paydown as positive cash flow? Are you selling this idea to money partners and are they actually buying it?

We include principle paydown in our expenses because I couldn``t justify paying off $300/month in principle while having to ask a money partner to make up an overall $200/month alligator and calling it a $100/mo positive cash flow.

If this is indeed how people are pitching their deals all my 25yr amorts just started looking a whole lot more attractive to potential investors that aren`t aware of this P&L accounting method...

 

[JRL]

Principal paydown isn`t an element of positive cashflow. That`s something that could be used in ROI/ROE calculations, but for cashflow statement purposes, it`s not relevant. Depreciation is a similar example. It`s a non-cash item.

Cashflow = All cash inflows - all cash outflows. Very simple.