Any investment's primary goal is profit . The hundreds of hours of calculations, research, and analyses are all part of the ultimate sacrifice to secure a higher return on investment.
However, not every investor enjoys manipulating numbers to calculate their cash flow, determining the viability of an investment. Most people prefer to do everything on autopilot, feeding a computer software with the numbers while watching it work.
Suppose you prefer to let computer software do the heavy lifting, you should be using a property cash flow calculator. If you don’t already use one, this article will show you the importance of tracking your investments’ performance using the cash flow metrics and how to use a property cash flow calculator to put this process on autopilot.
What Is Property Cash Flow?
Every real estate investor should understand the relationship between income and expenses as it pertains to real estate. The difference between these two variables is what’s referred to as property cash flow.
The cash flow for a real estate property is directly proportional to its profitability. Investors always strive for higher cash flows on their investment properties since the cash flow is the remainder when debts and all other expenses are factored out.
Contrary to what many investors think, cash flow is very different from profit. Cash flow can be positive or negative, while negative profit is unheard of in the investment world.
Why Maintain a Positive Cash Flow?
Every investor strives to maintain positive cash flows on their investment properties, but have you ever wondered why it’s even necessary?
A positive cash flow is a strong indicator that you’re buying good investment properties. When your expenses are less than your revenue, you’re certainly doing many things right.
On the flip side, a negative cash flow indicates poor investment practices, as you’re spending far more than your investments are generating on average.
How to Calculate Property Cash Flow
With the abundance of free property cash flow calculators on the Internet, learning how to calculate the cash flow for your property is getting less justifiable.
However, knowing how to calculate it manually can come in handy in the improbable scenario that you may want to calculate the cash flow for your investment properties without access to the Internet.
With sufficient data about your short term real estate investment properties, here's how to calculate your property cash flow manually with paper and a pen.
- Determine the gross income generated by the property. The gross income is the total amount generated by the property before deducting any expenses, wages, or allowances.
- Subtract all the expenses from the gross income. The fees include taxes, marketing costs, maintenance and repair costs, closing costs, mortgage payments, debt service, etcetera. The balance after subtracting all of these expenses makes up your total cash flow on the property.
Your cash flow can be positive or negative, and negative cash flows are more common than you think. If your expenses appear to outweigh your gross income, you have a negative cash flow.
Property Cash Flow Calculators
Calculating your cash flow with a paper and a pen was pretty standard back in the days, but that doesn’t mean you should be doing it, especially when there are better alternatives.
Manually calculating cash flow isn't only time-consuming, but it’s also prone to minor errors that may deceive you about the viability of an investment, and that’s where a property cash flow calculator comes into the scene.
Thanks to rapid technological innovation, you can now calculate ROI on rental properties from the comfort of your home, as long as you can access the Internet.
These calculators use provided data, and the details of the property, to make an analysis. Cash flow calculators don’t only show investors if they’re recording a positive cash flow, but they'll also tell if their cash flow is typical for that sort of property.
There are many property cash flow calculators on the internet, and they all have varying features and pricing. While some will simply calculate your cash flow, others can help you save them to the cloud, and some will even analyze the data to see if you’re making the best out of your investment.
The following section will list some features of an outstanding rental property investment calculator that you should look out for when choosing one for your next project.
Features of a Good Property Cash Flow Calculator
Most investment property calculators have different features, all of which the creators believe will add to the usability of the software. While some of these features are useful, most of them are pretty irrelevant.
Here are some indispensable features to look out for when choosing a property cash flow calculator.
Monthly Rental Costs Estimates
While a property calculator may be unable to provide accurate figures of the monthly rental costs of a rental property, it at least should provide estimates.
If your favorite property cash flow calculator lacks a rental cost estimation feature, you may want to move on to something better, like the one at The Short Term Shop.
Cash Flow Calculation
Any cash flow calculator should calculate cash flow, as that’s what they’re made to do in the first place. It may seem pretty obvious, but hundreds of dud cash flow calculators incapable of calculating cash flow exist.
If your chosen calculator doesn’t make it easy to calculate cash flow, it's probably incapable of calculating it. Why waste your time when there are plenty of easy-to-use alternatives?
As an investor, there are many metrics you need to track constantly to ensure that you’re making profitable investments, and your cash flow is one of them.
Calculating and tracking your cash flow requires only simple math. Still, it can quickly grow cumbersome when you start expanding your investment portfolio, and that’s when you need a property cash flow calculator.
A good cash flow calculator will help you calculate and store your cash flow while providing credible estimates of the rental property's monthly rental costs and overall ROI.
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