Real estate is nothing but a game of business. The four main criteria you need to know that will make you profits are:
1. Cash flow
2. Equity build up (the payoff of your loan)
3. Tax advantages
4. Price appreciation
In this article we are going to look at benefit number one. Benefit number one – Cash Flow (cash flow before tax). Investing in real estate is game of numbers.
If you play the game right and well, first you need to understand the numbers and how to control the numbers to get the results you want to get. The results being cash flow.
The method of calculating passive income/cash flow is the following:
Gross Rental Income
Minus: Vacancy rate
Equals: Adjusted Gross Income
Minus: Operating Expenses
Equals: Net Operating Income
Minus: Debt Service Payments
(mortgage)
Equals: Cash Flow
You now have all the numbers you need, and here is what you need to creating more cash flow. Two strategies. One is to increase your rental income and/or lowering your vacancies rates, second, reducing your operating expenses and/or your Debt Service Payments.
If you are investing in a rental home, it obvious that by paying less for the property would mean that your loan should be less, therefore your loan payments should be less and should give you more cash flow.
It is extremely important that before you every buy any rental real estate that you look at the cash flow and you should run the numbers using three different scenarios.
The best is where your cash flow are high and operating expenses are low, the worst case scenario is where your rental income is low and operating expenses are high and then the average scenario. If worst case scenario would come up with a good profit or if is still making sense to you, then it should be obvious to get in and buy the property.
How to find the best deals onPower of Sale and Foreclosure homes? Then visit www.TorontoPowerOfSaleHomes.ca. If you are looking get the best advice on the Toronto real estate market, we\’re here for you.
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