How to Find Cash Flow An Make Money For Investment Property

Determine Your Mortgage Payment
Your mortgage payment is the most important part of the cash flow calculation. The 4 factors that determine your payment are, price of property, down payment, Interest rate, and length of the loan.
Try using an online mortgage calculator, just Google 'mortgage calculator'. Use it to determine a range of payments from the lowest to the highest.
For example, use best and worse case scenarios. In one scenario use the highest interest rate you could get. Next, use the lowest rate you could get.
If you want to make money with investment property, know your mortgage payment!
Determine The Expenses For The Building
Find out the yearly costs for taxes, insurance, waste removal, water & sewerage. If you want to buy investment property and make money you need to estimate these cost accurately. So do your research!
I purposely left out utilities such as phone, cable, heat, and electric. These bills should be paid for by the tenants.
Add Maintenance Costs
You need to set aside money each month to cover maintenance expenses. Such thing as, a new roof, water heater, windows, painting, rugs, need to be accounted for and included in your cash flow analysis.
Depending on the size investment property, set aside 1-4% of the value of the property per year.
Example, if the house is tiny use 1%. If the house is very large use 4%.
Predict a high maintenance cost for your cash flow estimation. This will insure your investment property makes money.
Rental Income
Determine how much money each unit can be rented for.
Compare your investment property to similar ones and find out how much people are paying for rent.
Once you determine a solid estimate....subtract 5-10%!!! For instance if rent is going for $1000 per month, subtract 10% or ($100). Use $900 for your cash flow estimation.
Discounting rental rates is a good way to avoid unexpected downturns in the market. It will also help lower your chances of loosing money due to inaccurate cash flow estimations.
FYI, CHARGE THE GOING RATE! Just because you estimated lower doesn't mean you have to charge less.
Determine Cash Flow Of Investment Property
ADD: Your rental income for the entire year
SUBTRACT: Step 2 and 3
SUBTRACT: Entire year worth of mortgage payments at the highest interest rate you can afford.
Whats left is how much you will make or lose for the entire year.
One last thing, subtract 30% for taxes. This is your net income or Cash Flow.
Is The Money Good
Make sure that your return is at least 8-10%!!!!
Example, If your down payment is $10,000 and your net Income = $1000, your total return equals 10%! ($1000 divided by $10,000)
You should make at least 8-10% on each investment property. Any returns lower than this is not worth your efforts. Plus, if your predictions are accurate, you can count on making more than just 8-10%.
Tips and Explanations
I did not include depreciation expense in my cash flow estimation. I left this out purposely to give you a conservative way to predict cash flow. If I included depreciation your return will increase. Yes, I said increase!
If your return is under 8-10%, negotiate the price of the building and the interest rates on your loan. Negotiation is a great key to making money with investment property.Finally, try to be conservative!!! This will ultimately make you more money than you expected. It also avoids make bad investments. Remember, if the numbers don't work...don't buy it!
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