It is the complete picture…or at least your well-researched opinion of what may be the complete picture. The good news – real estate cash flows are easier and much more intuitive than traditional financial statement construction and analysis. Setting up your real estate cash flow is the first step to much more complicated real estate analysis and to more sophisticated performance measurement and asset management techniques. Let us look at what a real estate cash flow is, how to utilize it in your analysis and some potential pitfalls and concerns. Typically, expenses are more static than rents, so as you raise rents your mortgage, taxes, and insurance costs often decline as a % of gross rental income. There are nuances to this, but as a general rule this is often the case.
Positive cash flow is the secret to enjoying a mostly passive income stream. Most newly-minted landlords assume that cash flow refers to the money flowing in from monthly rental income. In reality, cash flow refers to the movement of money both in and out of rental properties. In real estate, expenses are real estate cash flow the inevitable counterpart to income—from maintenance costs, property taxes, and insurance premiums to utility bills and management fees. The key to managing expenses is not to eliminate them – that’s impossible – but to minimize them without compromising the value or functionality of the property.
The Importance of Income in Real Estate Investments
In this segment, Eric teaches participants how to acquire these valuable assets even with less-than-ideal financial backgrounds. This includes scenarios with bad credit or no credit, and with minimal or no cash upfront. He introduces innovative ways of using other people’s money to finance these investments, which opens the doors of real estate investing to those who may have previously considered it beyond their reach. Neumann’s new company Flow wants to transform the residential rental real estate market. Notably, it has the financial support of Andreessen Horowitz, the prominent Silicon Valley venture capital firm that was an early investor in everything from Facebook to Airbnb.
You’ll want to charge the highest rental rates you can without turning off potential tenants. If your rental property is located in a competitive neighborhood, or a unit opens up when demand is high, you might get away with charging more for rent than normal. On the other hand, you might be forced to drop your prices a bit if you’re not getting any bites.
How to Generate Positive Cash Flow in Real Estate
Local rental rates and property values play a huge role in cash flow as well. On a more regular basis, you can expect to invest money into repairing plumbing or fixing broken appliances. There will also be seasonal expenses such as snow removal, gardening, and window cleaning. Finally, don’t forget to budget for larger expenses such as remodels, expansions, repairing cracked pavement, or replacing roofing.
