This week ‘s tip is for those property investors looking to get a better understanding of the term positive cash flow.
Cash flow is really the lifeblood of an investment property. It is very important, especially when we’re in times where properties aren’t always increasing in value.
The fact that we need to hold onto properties for the longer term means that positive cash flow is absolutely critical.
Positive cash flow means that we’re putting money in our pocket each week. The property is essentially, self-funding.
Now there’s a lot of interpretations of the word positive cash flow. So today, we’re just trying to explain the benefits and the true meaning of the word positive cash flow.
How to work out if the property will have a positive cash flow?
Quite often when you’re looking at investment properties you will be quoted yields, so that you can determine the return on the investment.
The easiest way to calculate the yield of an investment property is take the purchase price then divided by the annual rent. This will give you the gross yield.
When you’re looking at holiday type properties, apartments, studio apartments etc, these are often advertised with the gross rental yield figure, so always keep that in mind when working out the return on investment.
The gross figure is like when you get paid, you don’t get to spend the gross amount you get paid. You get the net amount after tax. This is the same with the investment property.
The net return is really the true income of the property. So that’s after all the other property expenses. So, you’ve got the mortgage payments, rates, insurance, property management, repairs other costs associated with that property.
It’s really the net return that determines whether that property is costing you money per week or putting money in your pocket per week.
If you’re looking at figures and trying to estimate how the property is going to affect your personal cash flow, always go back to the net return on the investment property.
It is very easy to calculate when you understand or have a formula to take all those other expenses into mind and critical when holding the property for the longer term.
If you found that helpful and you would like more information, I’m hosting a webinar on Thursday, the 2nd June at 7:00pm.
It’s a live webinar and I’ll be going through in a lot more detail explaining cash flow.
I’ll have a real-life property example and all those expenses we need to consider. I will show you how to calculate the gross return, and then after all the expenses, the actual net return.
If you have any investment property questions, we will be concluding with a live Q and A session.
If you would like to register for the webinar, click here.
I hope to see you there.
Regards,
Geoff Tomkins
Buyers Advocate
PH: 0404 852 781
