Real estate is nothing but a game of business. The four main criteria you need to know that will make you profits are:
1. Passive income (cash flow)
2. Equity
3. Tax advantages
4. Price appreciation
This article we\’ll be looking at the criteria number one. Profit number one – Cash flow. Real Estate is mainly about 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 formula to calculate the cash flow is listed below:
Gross Rental Income
Minus: Vacancy
Equals: Adjusted Gross Income
Minus: Operating Expenses
Equals: Net Operating Income
Minus: Debt Service Payments
Equals: Cash Flow
With the quick explanation of the method above, here is your next step to generate more passive income and cash flow. Two ways to do this. Either gets more rental income by increasing the amount of rent and/or dropping down the vacancies rates or dropping down your operating costs and/or the Debt Service Payments.
If you\’re really interested in buying a rental property, it should be understandable to you that the lower amount you pay for the rental property, consequently your loan or Debt Service Payments is lower, the higher amount you get for your 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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