Cash Flow Analysis in Real Estate

Cash flow analysis in real estate takes into consideration a number of factors, including time investment. People who buy real estate want compensation for their investment as fast as possible. However, patience and smart decision-making are the ingredients to a long-term healthy return on any investment.

Real Estate Cash Flow Analysis

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A Basic Understanding of Cash Flow Analysis

Cash flow is the money coming in and the money going out. It can get very complicated, so if you’re new to real estate investment properties, it is wise to start with one or two properties and get comfortable with your new business.

As you do your calculations, the most important information you need is:

  • How much money can you make?
  • How much money will it take to make money?
  • How long will it take to make that money?

With these simple factors in mind, it makes sense to buy a property that already has a positive cash flow. This doesn’t mean you won’t put money into it, it just means you won’t go into the red doing it.

Income and Expenses

Your gross income is mostly rent, but it might be more than that if you own a multi-family property.

  • Rent
  • Coin operated laundry
  • Vending machines
  • Community room rental

Your expenses should be straight forward, but be ready for unexpected repairs or sudden vacancies.

  • Maintenance
  • Payroll
  • Advertising
  • Taxes

These are very simple lists, and certainly there are more things to consider. Since cash flow analysis takes the future into account, it can become very complex. Hire a real estate professional with experience in investment properties. Make sure that person understands your market.

A real estate expert will have knowledge about future development, tax rate increases, the job market, and what kind of rent prices the market will bear. It all matters when you make this kind of investment.