What is a positive cash flow investment property? And why is it the goal of every real estate investor who owns a rental property to achieve a positive cash flow on his/her investment property?
This blog aims to delve into the world of rental properties in order to help beginner real estate investors understand the importance of cash flow and how it is calculated, and to provide a solution to the time-consuming and daunting task of calculating a property’s cash flow through the use of a powerful online platform that can make your investment more seamless than ever before.
Positive Cash Flow Investment Property
One of the main methods for analyzing an investment property and determining its quality and/or estimating its profitability is through calculating the property’s cash flow.
Investment properties, and rental properties in particular, can have either a positive or a negative cash flow. For a real estate investor with the goal of making money, having one or more positive cash flow investment properties is, generally, a sign of success, as your properties will be making money for you, no matter how small of a profit it is.
As long as your cash flow is on the positive side of the spectrum, you’re on the safe side. However, and in order to increase your profits to their maximum level, it is important to understand what cash flow is and how it affects your investment property.
Related: 5 Ways to Create a Positive Cash Flow Income Property
- What Is Cash Flow?
Cash flow, in the simplest terms, is the amount of profit that your investment property is making after calculating all of the expenses related to your real estate investment. A positive cash flow investment property, in that sense, is a real estate property that is generating more money than what it costs in a cycle. This cycle can either be monthly or annual, but most real estate investors prefer to use the annual cash flow metric for a number of different reasons.
- How Important Is It for Your Investment Property?
Calculating the cash flow for your investment property is crucial for the success of your real estate planning. Calculating the annual cash flow of an investment property gives you an idea of the possible expenses that may occur and what they will cause, and how they will affect your rental property’s profitability, allowing you to plan ahead and avoid incidents where your property might cause you to lose money unexpectedly.
This is because cash flow takes into account all the expenses that will and/or may occur on an investment property, even when you’re not sure whether they may occur or not. For this reason, although the process of calculating cash flow might seem like a simple process, the difficulty usually arises when trying to figure out all the expenses that may or may not apply to your investment property.
How Does Mashvisor Calculate Cash Flow?
Typically, in order to determine a positive cash flow investment property and calculate its value, a real estate investor would need to use a spreadsheet and a calculator and do the process manually, which can be a time-consuming and daunting task, especially when a real estate investor is trying to calculate the cash flow for a number of different rental properties in order to compare them and determine the best one for his/her investment decision.
This, however, doesn’t have to be the case due to the emergence of a number of different online sources and platforms that can do the calculations for your, reducing the amount of time and effort needed to analyze different properties and their values.
Related: 6 Must-Have Real Estate Investment Tools
Mashvisor, in particular, is one of the most unique and powerful tools that real estate investors are starting to use for their investments, including the process of analyzing a cash flow investment property.
In addition to the several other features that it provides, Mashvisor helps real estate investors find the exact properties they’re looking for and calculate all values related to them to determine their quality and profitability such as cash flow, cash on cash return, or cap rates.
- Cash Flow
The main method of calculation used to determine an investment property’s cash flow is the following equation:
Cash Flow = Net Operating Income – Expenses
It seems simple enough.
This, however, can be a bit more complicated when trying to determine the different values, such as expenses or the NOI.
- NOI
The NOI, for example, of a rental property is basically the monthly rent that your tenants pay for renting your investment property. There are many expenses that affect your NOI, however, such as the occupancy rate of your rental property, which may lead to your property being vacant for a portion of the year, reducing your annual income from the property unexpectedly, which can affect your calculations and lead to the failure of your investment.
- Expenses
The expenses that may apply to your investment property can vary widely depending on your individual property, its location, its condition, the type of tenants that it attracts, and a number of other factors. Any costs that may apply to your investment have to be included in your calculations: from taxes, through mortgage loan payments, to electricity and water bills and property maintenance.
The process of gathering information and determining the exact expenses that may apply to your property is, in fact, the most daunting task of calculating the value of your cash flow investment property.
You would normally have to do a lot of research, compare different properties, ask around, and receive professional advice in order to pinpoint the expenses of your investment property. This makes the process of analyzing a number of different properties in order to determine the best one for your investment a process that might take weeks or months, leading to investors either giving up or investing in sub-optimal properties to avoid reanalyzing many investment properties.
Related: How to Perform a Real Estate Market Analysis
How Is Mashvisor the Solution?
In addition to providing you with a powerful search tool to find investment properties all around the US, Mashvisor also allows you to search based on specific criteria, including searching for a specific cash flow investment property with your value of choice. Additionally, with Mashvisor you can seamlessly analyze and compare a number of different investment properties with regards to their cash flow or any other metric of your choice, allowing you to determine the best property for your investment in a matter of minutes.
The Mashvisor investment property calculator also gives you estimates of all the different expenses that may apply to your investment based on historical data, and it allows you to change the values of these expenses as you see fit in order to get the most accurate results.
Last but not least, the Mashvisor investment property calculator can also provide you with each property’s occupancy rate (the rate at which the investment property is expected to be rented out throughout the year), based on traditional and Airbnb data, saving you even more time and effort that you would otherwise spend on trying to determine this value.
Bottom Line
A positive cash flow investment property is the goal of any real estate investor who’s relying on rental properties as their source of income. Since cash flow is one of the most important values to calculate for your investment property, and since calculating it is such a daunting and time-consuming process, Mashvisor has come up with a solution for this problem that aims to directly make the process easier for real estate investors, both beginners and experts, in order to make real estate investing easier and more accessible than ever before.