The importance of cash flow, what are income and expenses;

In most cases, we invest money to get a positive cash-flow as soon as possible. What does cash-flow mean? To understand the meaning of it, you only need to be aware of two terms: Income and expenses. Income is the amount of money you receive regularly. For example, you rent the flat, and you get the revenue every month. Expenses are payments you are charged during the month to cover the costs of your property. it might be insurance costs, repair costs and lots of extra costs.

How to calculate cash-flow:

To calculate cash-flow, you simply take your monthly income and expenses.

Cash flow = Gross rental income – all expenses.

Let’s say, your monthly gross rental income is $1,500. And your overall expenses equal to $760. That means your cash-flow is equal to $1500-$760=$740.

How much cash-flow should you have per unit?

It depends, you might have bigger cash-flow than your competitors but the return on investment is a more important and exact indication of your success. Return On Investment (ROI) = (Current Value of Investment−Cost of Investment​​)/Cost of Investment​​.

Factors that affect negatively on your cash flow:

Certain factors that might affect your cash-flow include tenant turnover, vacancies and constant need for repair.

Tenants can anytime take their luggage and empty the flat. It will have a serious impact on your income unless you have put restrictions on the contract. You should always be ready for this case and take appropriate measurements.

Another serious obstacle for real estate cash-flow is to have vacant units during hardships. Like today, because of virus spread, all travels are canceled and the demand for renting has dramatically reduced. And lastly, you should take into consideration that when a tenant leaves the flat, you might have lots of repairs to do that will charge you with extra money. Bigger the expenses, lower your cash-flow.

Factors that affect positively on your cash flow:

Despite many risky perspectives, there are a couple of factors that positively affect your cash-flow. If you are someone who constantly cares about his clients and comforts them in every possible way, you are guaranteed that you get long-term tenants and positive cash-flow every month. Another big positive factor is that you can increase rent if you add some useful amenities to your property. It will also attract even more clients and gives you bigger cash-flow.

Article Source: https://www.biggerpockets.com