How to Calculate Cash Flow

Calculating cash flow is an essential part of real estate investing. It’ll help you determine how much money you are earning from your owned properties. It is a fairly simple process that can be learned in management courses, real estate classes, and also by reading this simple guide.

The first step is to find the annual income of your property. This involves adding up every dollar that the property makes. This can come from rent as well as such things as vending machines and even coin-operated laundry facilities. This final amount is the annual income of the real estate property.

Next, you need to determine the operating expenses. This involves adding up insurance charges, property taxes, legal fees, and the cost of managing the property.

I would also consider adding in a safety value just in case you end up having to pay unpaid utility bills that your tenants are not properly taking care of. After that, add any losses that may have been incurred such as paying for damage from a storm, fixing a faucet, painting a wall, or dealing with basic lawn care.

This is why it is prudent that before you purchase a property, you take a careful analysis of its current condition. Otherwise, you might end up with lots of unwanted costs.

Have you ever bought a used car that was being sold at a really cheap price and then had it break down on you one month later? I have and the repairs on it ended up costing me more than the amount I paid for it to begin with!

Now, I recommend adding approximately $1200, or $100 per month, to the value obtained to cover average tax costs. The final number is your operating expense.

The third step involves determining your total debt service. Start off by multiplying your monthly mortgage fee by a value of twelve to obtain an annual figure. After that, add any debts related to this property to the annual figure.

Now comes the final step. Add all your operating expenses to your total debt service. Then subtract that from your total income. If you reach a positive number, then you have obtained a positive cash flow. Otherwise, you have obtained a negative cash flow.