So I am still looking to get into RE but am a little stalled into what you guys consider "Cash Flow". I would love to know what variables people on here consider when calculating the cash flow of a property. I am trying to create an excel sheet that will give me a rough idea of which properties will give me a positive cash flow in order to shorten our list of possibles. I am also trying to find a great RE agent, so if you know one please let me know.
How Do You Calculate Cash Flow?
- Thread starter aiden1983
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Cash Flow is calculated as follows; Total (monthly) income less all (monthly) outgoing expenses such as Debt Service (first or second mortgage), Property Taxes, Condo Fees (if applicable) and Insurance. Variables that will impact your monthly cash flow would include Maintenance, Repairs and Vacancies. Hope this helps?
QUOTE (aiden1983 @ Sep 5 2009, 04:32 PM) So I am still looking to get into RE but am a little stalled into what you guys consider "Cash Flow". I would love to know what variables people on here consider when calculating the cash flow of a property. I am trying to create an excel sheet that will give me a rough idea of which properties will give me a positive cash flow in order to shorten our list of possibles. I am also trying to find a great RE agent, so if you know one please let me know.
QUOTE (aiden1983 @ Sep 5 2009, 04:32 PM) So I am still looking to get into RE but am a little stalled into what you guys consider "Cash Flow". I would love to know what variables people on here consider when calculating the cash flow of a property. I am trying to create an excel sheet that will give me a rough idea of which properties will give me a positive cash flow in order to shorten our list of possibles. I am also trying to find a great RE agent, so if you know one please let me know.
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Good question.
The answer depends on whether you are a investor or a landlord, buying or selling, big investor or small investor, starting out or an old timer in the business, real estate agent or accountant. It is more about perspective than anything else.
Take special notice of the answers from those in the business of selling investments.
It`s akin to asking 6 different doctors for there medical opinion. You will get 6 somewhat different answers for the same illness.
Cash flow varies depending on whether the investor is looking at the past 6 months or the next 5 years, whether you are looking at actual numbers or projected numbers.
Being a long time small (under 1/2 mil) conservative investor my calculations are nothing like the REIN system teaches.
The REIN system is designed to start fast and grow fast. With a system like that you need to be a little loose with the numbers to make things work. Waiting for the best deal slows down your growth rate and as such cash flow is not based on future expenses but rather on known expenses from the get go. At least that is my opinion based on what I have experienced of the system.
Hopefully you will get some interesting answers to your question.
The answer depends on whether you are a investor or a landlord, buying or selling, big investor or small investor, starting out or an old timer in the business, real estate agent or accountant. It is more about perspective than anything else.
Take special notice of the answers from those in the business of selling investments.
It`s akin to asking 6 different doctors for there medical opinion. You will get 6 somewhat different answers for the same illness.
Cash flow varies depending on whether the investor is looking at the past 6 months or the next 5 years, whether you are looking at actual numbers or projected numbers.
Being a long time small (under 1/2 mil) conservative investor my calculations are nothing like the REIN system teaches.
The REIN system is designed to start fast and grow fast. With a system like that you need to be a little loose with the numbers to make things work. Waiting for the best deal slows down your growth rate and as such cash flow is not based on future expenses but rather on known expenses from the get go. At least that is my opinion based on what I have experienced of the system.
Hopefully you will get some interesting answers to your question.
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QUOTE (aiden1983 @ Sep 5 2009, 03:32 PM) I am also trying to find a great RE agent, so if you know one please let me know.
Good question, an investment RE agent is a critical part of your team.
In order to answer your question it would help to know where you are from and where you are focused on investing, perhaps filling in your member profile would be a good start...
Good question, an investment RE agent is a critical part of your team.
In order to answer your question it would help to know where you are from and where you are focused on investing, perhaps filling in your member profile would be a good start...
QUOTE (EdRenkema @ Sep 5 2009, 06:22 PM) Good question, an investment RE agent is a critical part of your team.
In order to answer your question it would help to know where you are from and where you are focused on investing, perhaps filling in your member profile would be a good start...
Located in Calgary and am looking into investing in a duplex so that my wife and I can live in part of it and rent the other. Once we save for another place we will rent both sides and continue.
In order to answer your question it would help to know where you are from and where you are focused on investing, perhaps filling in your member profile would be a good start...
Located in Calgary and am looking into investing in a duplex so that my wife and I can live in part of it and rent the other. Once we save for another place we will rent both sides and continue.
QUOTE (aiden1983 @ Sep 5 2009, 06:33 PM) Located in Calgary and am looking into investing in a duplex so that my wife and I can live in part of it and rent the other. Once we save for another place we will rent both sides and continue.
Since you will be living in it, your actual numbers will be different than a straight rental, but do the numbers as though it`s a straight rental, since it will be in the future.
Use the general rules 1st to weed out the weaker properties.
Then plug in all your known fixed numbers, and use a range of interest rates (or a reasonable average). Try 100% financed. 90%. 80%. Make sure you account for increased costs over time but don`t bank on appreciation. Include everything for realistic calculations.
What is your time frame for this and your next property?
How will you refinance?
You may have issues with deductions(1/2), capital gains when you sell, etc. (not to mention having tenants under your own roof, which can be good or can be awful!)
Good luck!
Since you will be living in it, your actual numbers will be different than a straight rental, but do the numbers as though it`s a straight rental, since it will be in the future.
Use the general rules 1st to weed out the weaker properties.
Then plug in all your known fixed numbers, and use a range of interest rates (or a reasonable average). Try 100% financed. 90%. 80%. Make sure you account for increased costs over time but don`t bank on appreciation. Include everything for realistic calculations.
What is your time frame for this and your next property?
How will you refinance?
You may have issues with deductions(1/2), capital gains when you sell, etc. (not to mention having tenants under your own roof, which can be good or can be awful!)
Good luck!
QUOTE (housedoc @ Sep 6 2009, 07:55 AM) Since you will be living in it, your actual numbers will be different than a straight rental, but do the numbers as though it`s a straight rental, since it will be in the future. Use the general rules 1st to weed out the weaker properties.
Then plug in all your known fixed numbers, and use a range of interest rates (or a reasonable average). Try 100% financed. 90%. 80%. Make sure you account for increased costs over time but don`t bank on appreciation. Include everything for realistic calculations.
What is your time frame for this and your next property?
How will you refinance?
You may have issues with deductions(1/2), capital gains when you sell, etc. (not to mention having tenants under your own roof, which can be good or can be awful!)
Good luck!
We are looking to get a property within the next 6 months and if all goes well then getting a 2nd property within 18 months (enough time that we will feel comfortable in our experience to grow). I have been taking into account that it will be 100% rented for the fact that we do plan on renting it out at 100% in the future. Thanks for the help.
Then plug in all your known fixed numbers, and use a range of interest rates (or a reasonable average). Try 100% financed. 90%. 80%. Make sure you account for increased costs over time but don`t bank on appreciation. Include everything for realistic calculations.
What is your time frame for this and your next property?
How will you refinance?
You may have issues with deductions(1/2), capital gains when you sell, etc. (not to mention having tenants under your own roof, which can be good or can be awful!)
Good luck!
We are looking to get a property within the next 6 months and if all goes well then getting a 2nd property within 18 months (enough time that we will feel comfortable in our experience to grow). I have been taking into account that it will be 100% rented for the fact that we do plan on renting it out at 100% in the future. Thanks for the help.
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QUOTE (invst4profit @ Sep 5 2009, 06:16 PM) ..
The REIN system is designed to start fast and grow fast. ..
I would not agree with that .. REIN teaches you to use a system .. but the PACE is your own decision !
Cash-flow comes in two forms: into your jeans and out of your jeans ! Usually out of your jeans in the early days of an asset as it needs cash-to-close, cash to upgrade, cash to cover vacancies .. so ensure there is enough cash at hand to start with and to sustain a 5+ year hold .. cash-flow is not a straight line !!
Cash is King - Cash-Flow is Queen ™
The REIN system is designed to start fast and grow fast. ..
I would not agree with that .. REIN teaches you to use a system .. but the PACE is your own decision !
Cash-flow comes in two forms: into your jeans and out of your jeans ! Usually out of your jeans in the early days of an asset as it needs cash-to-close, cash to upgrade, cash to cover vacancies .. so ensure there is enough cash at hand to start with and to sustain a 5+ year hold .. cash-flow is not a straight line !!
Cash is King - Cash-Flow is Queen ™
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When members talk of cashflow, are we talking about positive cashflow after all expenses. Are we counting the principle paydown of the mortgage? The mortgage ammortization rate has alot to do with cashflow if the principle part of the mortgage payment is not accounted for!
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QUOTE (luckyluciano @ Sep 8 2009, 09:56 AM) When members talk of cashflow, are we talking about positive cashflow after all expenses. Are we counting the principle paydown of the mortgage? The mortgage ammortization rate has alot to do with cashflow if the principle part of the mortgage payment is not accounted for!
The Cashflow we refer to should be the CASH you take out of the property after having paid all expenses, including allowances set aside for maintenance and vacancy and future capital requirements.
Principle paydown is your forced-savings program. It does not become CASH until you refinance or sell the property.
The Cashflow we refer to should be the CASH you take out of the property after having paid all expenses, including allowances set aside for maintenance and vacancy and future capital requirements.
Principle paydown is your forced-savings program. It does not become CASH until you refinance or sell the property.
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You should also keep in mind when figuring positive cash flow that every investment property has two sources of income. The property itself generates a income but so does any cash or down payment injected into the purchase.
This also includes principal pay down over the life of the investment.
Contrary to what many may think paying down the principal, or for that matter owning a property outright, does not increase positive cash flow it only redirects the income. You do not make any more money with your investment.
Your down payment should be attributed some value even if only equal to the mortgage rate. If not you might as well leave it where it is already invested. Cash must always earn it`s keep. Think of it like a JV partner.
Deducting this amount from the rental income gives a truer value in calculating positive cash flow.
For this reason I always calculate positive cash flow based on 100% financing.
This also includes principal pay down over the life of the investment.
Contrary to what many may think paying down the principal, or for that matter owning a property outright, does not increase positive cash flow it only redirects the income. You do not make any more money with your investment.
Your down payment should be attributed some value even if only equal to the mortgage rate. If not you might as well leave it where it is already invested. Cash must always earn it`s keep. Think of it like a JV partner.
Deducting this amount from the rental income gives a truer value in calculating positive cash flow.
For this reason I always calculate positive cash flow based on 100% financing.
- Joined
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- 100
QUOTE (invst4profit @ Sep 8 2009, 02:09 PM) You should also keep in mind when figuring positive cash flow that every investment property has two sources of income. The property itself generates a income but so does any cash or down payment injected into the purchase.
This also includes principal pay down over the life of the investment.
Contrary to what many may think paying down the principal, or for that matter owning a property outright, does not increase positive cash flow it only redirects the income. You do not make any more money with your investment.
Your down payment should be attributed some value even if only equal to the mortgage rate. If not you might as well leave it where it is already invested. Cash must always earn it`s keep. Think of it like a JV partner.
Deducting this amount from the rental income gives a truer value in calculating positive cash flow.
For this reason I always calculate positive cash flow based on 100% financing.
There is alot of talk on this site of positive cash flow based on 100% financing. I have never seen positive cash flow on a property that was in high demand as far as location, condition, legality etc. As a matter of fact in and around the GTA (Toronto) it is difficult to even find a good investment property, investors don`t sell them! They are a cash cow! As a matter of fact, a number of years ago, we bought a 15,000 sq foot plaza and paid above market value at the time just to own it! Knowing full well the rents would go up with inflation and that it was a desirable demand location, easy to rent & maintain. This plaza has been a very passive investment for us and has doubled in value along with most other real estate in the GTA because of the low interest rates.
I know the less desirable, (for a multitude of reasons) the better the return. What kind of investments are out there that are positve cash flow with 100 % financing? Am I missing something here?
This also includes principal pay down over the life of the investment.
Contrary to what many may think paying down the principal, or for that matter owning a property outright, does not increase positive cash flow it only redirects the income. You do not make any more money with your investment.
Your down payment should be attributed some value even if only equal to the mortgage rate. If not you might as well leave it where it is already invested. Cash must always earn it`s keep. Think of it like a JV partner.
Deducting this amount from the rental income gives a truer value in calculating positive cash flow.
For this reason I always calculate positive cash flow based on 100% financing.
There is alot of talk on this site of positive cash flow based on 100% financing. I have never seen positive cash flow on a property that was in high demand as far as location, condition, legality etc. As a matter of fact in and around the GTA (Toronto) it is difficult to even find a good investment property, investors don`t sell them! They are a cash cow! As a matter of fact, a number of years ago, we bought a 15,000 sq foot plaza and paid above market value at the time just to own it! Knowing full well the rents would go up with inflation and that it was a desirable demand location, easy to rent & maintain. This plaza has been a very passive investment for us and has doubled in value along with most other real estate in the GTA because of the low interest rates.
I know the less desirable, (for a multitude of reasons) the better the return. What kind of investments are out there that are positve cash flow with 100 % financing? Am I missing something here?
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QUOTE (invst4profit @ Sep 8 2009, 12:09 PM) ..
For this reason I always calculate positive cash flow based on 100% financing.
There are THREE portions in a real estate deal that contribute to a return:
a) cash-flow (or cash on cash ROI),
b) mortgage paydown, and
c) value upside
Thus, the combination of a) b) and c) has to be taken into consideration. One cannot look at real estate and state: only a) is important. Of course it is important to hold the asset for 5+ years. But, a property with tight or close to 0 cash-flow may make a great investment if
i) a reserve is held and
ii) if the mortgage is paid down and
iii) there is likely appreciation (on average: inflation .. often higher in in-migration markets like W-Canada)
For this reason I always calculate positive cash flow based on 100% financing.
There are THREE portions in a real estate deal that contribute to a return:
a) cash-flow (or cash on cash ROI),
b) mortgage paydown, and
c) value upside
Thus, the combination of a) b) and c) has to be taken into consideration. One cannot look at real estate and state: only a) is important. Of course it is important to hold the asset for 5+ years. But, a property with tight or close to 0 cash-flow may make a great investment if
i) a reserve is held and
ii) if the mortgage is paid down and
iii) there is likely appreciation (on average: inflation .. often higher in in-migration markets like W-Canada)
- Joined
- Aug 29, 2007
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QUOTE (luckyluciano @ Sep 14 2009, 05:58 PM) There is alot of talk on this site of positive cash flow based on 100% financing. I have never seen positive cash flow on a property that was in high demand as far as location, condition, legality etc. As a matter of fact in and around the GTA (Toronto) it is difficult to even find a good investment property, investors don`t sell them! They are a cash cow! As a matter of fact, a number of years ago, we bought a 15,000 sq foot plaza and paid above market value at the time just to own it! Knowing full well the rents would go up with inflation and that it was a desirable demand location, easy to rent & maintain. This plaza has been a very passive investment for us and has doubled in value along with most other real estate in the GTA because of the low interest rates.
I know the less desirable, (for a multitude of reasons) the better the return. What kind of investments are out there that are positive cash flow with 100 % financing? Am I missing something here?
There are plenty of properties across Canada that do provide positive cash flow based on 100% financing. If you can not find them it is because you are either looking in the wrong place or at the wrong type of property.
Toronto as an example, as you have said, does not work.
As Thomas has shown there are multiple income sources in any investment plan however a new investor must keep in mind that without positive cash flow it may be necessary to continue to invest capital as the reserve is called upon to make repairs etc.
The novice investor must also keep in mind that appreciation is speculative and depending on the circumstances at time of sale may be non existent.
Yes 0 cash flow may work out OK but you must have the fortitude to hang on during possible stressful times (bad tenants) and the desire to work hard for a future return with few rewards along the way.
I know the less desirable, (for a multitude of reasons) the better the return. What kind of investments are out there that are positive cash flow with 100 % financing? Am I missing something here?
There are plenty of properties across Canada that do provide positive cash flow based on 100% financing. If you can not find them it is because you are either looking in the wrong place or at the wrong type of property.
Toronto as an example, as you have said, does not work.
As Thomas has shown there are multiple income sources in any investment plan however a new investor must keep in mind that without positive cash flow it may be necessary to continue to invest capital as the reserve is called upon to make repairs etc.
The novice investor must also keep in mind that appreciation is speculative and depending on the circumstances at time of sale may be non existent.
Yes 0 cash flow may work out OK but you must have the fortitude to hang on during possible stressful times (bad tenants) and the desire to work hard for a future return with few rewards along the way.