Skip to content
Multi-Family and Apartment Investing

User Stats

6
Posts
2
Votes
Rino I.
2
Votes |
6
Posts

User Stats

1,868
Posts
1,895
Votes
Kevin Sobilo
  • Rental Property Investor
  • Hanover Twp, PA
1,895
Votes |
1,868
Posts
Kevin Sobilo
  • Rental Property Investor
  • Hanover Twp, PA
Replied Sep 19 2023, 04:05

@Rino Illiano, YES!

As any real Star Trek fan would know, the Ferengi 1st rule of acquisition states "Once you have their money, NEVER give it back!" lol

Well, net cash-flow is in your pocket unlike market appreciation or mortgage pay-down that is locked inside equity in the property. So, once its in your pocket you don't have to give it back (except maybe a small cut to the tax-man). 

User Stats

6
Posts
2
Votes
Rino I.
2
Votes |
6
Posts
Rino I.
Replied Sep 19 2023, 09:13

What about if the property is an older property.. that needs work? such as new roof , plumbing ?

User Stats

257
Posts
107
Votes
Ryan Muska#2 First Time Home Buyer Contributor
  • Lender
  • Saddle Brook, NJ
107
Votes |
257
Posts
Ryan Muska#2 First Time Home Buyer Contributor
  • Lender
  • Saddle Brook, NJ
Replied Sep 19 2023, 09:16
Quote from @Rino Illiano:

What about if the property is an older property.. that needs work? such as new roof , plumbing ?


 Net cash flow is good, but in your plan you should have money put aside for capital expenditures. Those include plumbing, new roof, heating, etc.

After you have put aside money for those expenses, then the rest (barring you have paid everything else off) is net cash flow. And, like Kevin said, it is always good!

User Stats

279
Posts
288
Votes
Zachary Ware#1 Multi-Family and Apartment Investing Contributor
288
Votes |
279
Posts
Zachary Ware#1 Multi-Family and Apartment Investing Contributor
Replied Sep 19 2023, 09:58

I would agree that net cash flow is great to have, and a requirement for properties I underwrite. You do need to account for capital expenditures such as roof, parking lot, plumbing, HVAC, etc. These are large expenses that you should collect and save money for over time. I also account for routine maintenance that will be needed and unit turnovers. 

User Stats

3,029
Posts
2,659
Votes
Evan Polaski#4 Multi-Family and Apartment Investing Contributor
  • Cincinnati, OH
2,659
Votes |
3,029
Posts
Evan Polaski#4 Multi-Family and Apartment Investing Contributor
  • Cincinnati, OH
Replied Sep 19 2023, 11:31

@Rino Illiano, on the surface, yes.

But, I guess the point of your question is either:
How do I calculate net cash flow? or
Is there a scenario that cash flow is actually bad?

On the first, there is no set in stone way.  You could look at net cash flow of the month/quarter/year/etc.  In this case, you have rents in, mortgage and repairs out, and possibly a new roof in that period.  That could be negative cash flow, but your roof is also a once-every-25-years expense.  A lot of people reserve for that outside of "cash flow".

On the second, even if you have true positive cash flow.  Every year, you are bringing in, say, $2,400/yr in actual profit after all your reserves, it could still be bad, sort of.  Let's say you bought in a marginal area where crime keeps getting worse.  Other home owners are highly leveraged with bad credit and no savings.  Your property value is dropping $10,000/yr on average.  In this case, you are cash flow positive, but actually losing money (unless you hold forever and don't worry about the actual value of your property).  While this is an extreme scenario, I would argue positive cash flow is not a good thing here.  

User Stats

992
Posts
688
Votes
Benjamin Aaker
  • Rental Property Investor
  • Brandon, SD
688
Votes |
992
Posts
Benjamin Aaker
  • Rental Property Investor
  • Brandon, SD
Replied Sep 19 2023, 14:45

I think you are wondering if net positive cash flow is better than zero or net negative. Of course. But making $1 a year in cash flow is not great. Especially since cash flow is calculated before investor payback and income taxes. It can be bad if the net cash flow came about because of deferring maintenance on the property.