There is a lot of real estate vocabulary that don’t always make sense at first. I know a lot of words didn’t make sense to me until I actually went through the process of acquiring my first rental property.
Of all the real estate investing language, the words that I heard the most is CASH FLOW and to me, that meant it was the most important so I did some research to learn more about it.
Cash Flow is the money left over after all expenses have been paid. Consider it to be your TAKE HOME PAY or NET PAY.
So, how do you determine if your property is CASH FLOWING or not. I’m going to do the math on my own rental property to see if it’s cash flowing or not.
- Monthly Rental Income = $750
- Mortgage = $0 (yes, I don’t have a mortgage on this property)
- Property Taxes = $49.73 (I took my last property tax bill amount and divided that number by 12)
- Property Insurance = $63.67(My monthly insurance bill)
- Property Management Fees = $75 (This is 10% of the rental income)
- Vacancy Reserves = $37.50 (This is 5% of the rental income)
- Repair Reserves = $75 (This is 10% of the rental income)
After I add all of my expenses, I have a total of 300.90 paid monthly in expenses.
Then, I take $750 and subtract $300.90. The formula looks like this $750-$300.90.
The amount left over is $449.10.
Yes, my property is CASH FLOWING!