Wholesaler · Lenoir, NC · Member since 2013 · 297 posts · 127 votes
I have 4 property's that I rent out and I have 2 that I partner out with my dad. Most of them pretty much fell into our lap. I have never figured out how to figure out what my cash flow would be. I always thought if the payment was $200.00 and I rented it out for $500.00 my cash flow was $300.00. From what I have been reading this is wrong. Can anyone help and shed a light on it for me.
Involved In Real Estate · Palm Springs, CA · Member since 2011 · 144 posts · 78 votes
12y
To calculate your cash flow:
Take your monthly rent, subtract your monthly loan payment on the property, subtract 1/12 of your annual property taxes, subtract 1/12 of your annual insurance premium, subtract any HOA fees. The balance is your monthly cash flow.
I think what you are referring to is that this site teaches that you can't overlook intermittent expenses (such as maintenance, capital expenditures, vacancy) when calculating cash flow. So, for your example, your cash flow might be $300 in the good months (assuming you are accounting for taxes and insurance), but in a month where the property is vacant and you have to pay to have stuff fixed and cleaned, you are now negative cash flow. That's why people here stress setting aside some of your income each month towards those future expenses and not counting on it as profit. Same goes for property management. Maybe you do it yourself now, but if you need/want to have someone else handle it in the future, it could make a property go from cash flow positive to break even or negative cash flow.
The general rule recommended on this site is to assume that, over time, 50% of your rental income will go towards expenses (taxes, insurance, management, vacancy, maintenance, capital expenditures) and the remaining 50% can be used to pay any debt service and only after all that do you have cash flow.