Cash flow, cash on cash return, cap rate…
The many faces of real estate investing calculators. You often hear it here and there when expert real estate investors start emphasizing on the importance of a cash flow calculator in conducting real estate business. On the other hand, could you go about without resorting to a cash flow calculator? Or what advantage can it bring those who take the time to understand its unique insight?
What is cash flow?
According to Investopedia, cash flow is the net amount of cash transferred in and out of any business. Accordingly, since making money in real estate is the goal of investing, it comes only natural to real estate investors to figure out how much return on investment to expect. Keep in mind that the cash flow is an indicator of how profitable a real estate investment can be. To clarify, the cash flow is a term used for all types of investments, whether in stocks or real estate. It gives the investor a hint of the profits that he/she can expect after factoring in total expenses of the investment.
What is a cash flow calculator?
A cash flow calculator is an online real estate investment analysis tool that does all the work on the behalf of the real estate investor or agent. In an ideal situation, you can use the cash flow calculator to calculate the cash flow figure for any investment property, whether a multi-family investment property or a single-family property. With today’s technology, you don’t have to calculate it manually anymore. You can take the time and use an online cash flow calculator through the many available online channels.
Calculating cash flow manually
Before we get into the use of a cash flow calculator, let’s try to give an outline of the manual calculation process of cash flow. To begin, the basic equation used to calculate the cash flow for real estate investments is as follows:
Cash flow = Total Income – Total Expenses
Doesn’t get easier than that!
The tricky part remains in calculating the totals of both the income and expenses. As we all know, manual calculations always have a marginal error. Let’s break things down even further. Below are the two components of the cash flow formula:
When talking about real estate investments, your primary source of income is your rental income. Thankfully, this narrow income stream makes it simple to calculate incomings for the average real estate investor. So, when calculating the total income of an investment property, real estate investors calculate the total rental income that can be collected from tenants. Moreover, if a property has rental storage units or any other kind of income streams, they all must be factored in along with the rental income.
Looking to get inspired? Read this blog post: How These 4 Real Estate Investors Travel the World on Rental Income.
Going to the second part of the manual cash flow equation, we arrive at the total expenses station. Keep in mind that when using an online cash flow calculator, the calculation process is all automated and calculated using real estate comparables that AI conducts automatically. When going for a manual cash flow calculator, a real estate investor must figure out all the costs and expenses of running a real estate investment property. In other words, calculating expenses must include the following expenses if incurred:
- Mortgage payments
- Mortgage insurance
- Property tax payments
- Utilities if you’re choosing a short-term rental strategy
- Repairs and maintenance
- Vacancy costs
Why do you need a cash flow calculator?
The use of a cash flow calculator is often derived from the overall usage of an investment property calculator. Keep in mind that the birth of all measurable calculations that real estate investors use to measure a property’s return on investment starts with figuring out the cash flow. If you’re going for a real estate investment property, whether an Airbnb rental or a traditional rental, you will find the cash flow calculator to be of major use. Additionally, manual calculations of real estate metrics always fall for that marginal error factor. Therefore, using an online investment property calculator that encompasses a cash flow calculator can process any possible property’s data with minimal errors in the calculations. Why not take a bargain by clicking here and making use of the 14-day free trial offered by Mashvisor! It doesn’t get more accurate than that!
Related: Turn Your Investment Property Search into 15 Minutes with Mashvisor.
Why Mashvisor’s cash flow calculator?
With Mashvisor’s cash flow calculator, a real estate investor can find out all the derivatives that stem out of investment property valuation variables. These often include the cash flow, cash on cash return, and even Airbnb occupancy rates. All these metrics join hands to form Mashvisor’s investment property calculator. With accurate up-to-date data and a top-of-the-line property finder, any real estate investor can go specify his/her investment needs and find a property that fits his/her real estate investment portfolio.
In the picture below, you’ll find Mashvisor’s cash flow calculator. Take a look to grasp the concept!
Types of properties according to cash flow
When calculating the cash flow for any potential investment property, your possible investment is going to fall into one of these two categories:
Negative cash flow income property
A negative cash flow income property is what you don’t want to have with an investment property. In the case of a negative cash flow, the property’s overall expenses are exceeding the income. In such a case, the real estate investor is going to have to resort to using his/her own cash to cover the deficit that the property is creating. This rental property is highly unrecommended for real estate investors to venture in. Additionally, the most successful real estate investors rely on the cash flow to make real estate investment decisions. And that’s the way it should be.
On the other side of the wall, we get real estate investors trying to balance out negative cash flow properties by counting on real estate appreciation to change their negative cash flow situation into a positive one. In many cases, the real estate appreciation is not accelerating fast enough to turn it positive.
If you’ve already gone and bought a negative cash flow income property, read this blog post: How to Turn a Negative Cash Flow Rental Property into a Positive Cash Flow Rental Property.
Positive cash flow income property
A very desirable investment property is one with a positive cash flow! In the case of a positive cash flow, the income property is one where the rental income exceeds the operational expenses of the property. In fact, the most successful real estate investors end up pocketing a substantial amount of rental income through diversifying their real estate investment portfolio with the many types of real estate. The one thing all the properties in that portfolio would have in common is the positive cash flow!
To start looking for and analyzing the best investment properties in your city and neighborhood of choice, click here.
Making money in real estate is what it all comes down to! Real estate investors must go back and forth to make intelligent real estate investment decisions. Making sure that you’re making the right decisions has never been easier with a cash flow calculator. What are you waiting for? Start investing in positive cash flow properties!
If you have any more insights on the cash flow calculator, please share them with us in the comments section below.