To calculate the cash flow, you compare your income with your expenses. If you have more income than expenses, you have a surplus. i. e., your cash flow is positive. The goal when buying a property is that your income — the rent — is higher than your monthly installment (the interest and the repayment). So that you have money left over.
To calculate the cash flow of your real estate investment, you need the following data:
+ Cold rent
- Non-apportionable costs (e.g., administration)
- Maintenance reserves
= Net income
= Cash flow
One goal of your asset accumulation is to make the cash flow positive in the long run. This can be done, for example, by increasing your rent or lowering your interest rates when you refinance.
What else might interest you: The cash flow can also be improved in the context of your tax return. You can claim depreciation for tax purposes and also the interest for tax purposes. For more detailed information, ask your tax advisor. As part of a portfolio strategy, it can make sense to combine properties with different cash flows to minimize your risk.
Cash flow is not the only key figure you should know when investing in real estate: