Cash Flow and your Rental property

Following the previous article about “ Setting a Fair Rent “  the next 3 articles will cover the following points

(a) Your Cashflow

(b) Calculating your Budget

(c)  Find your Rental Property

So,  to start with, we are going to look at cash flow and your rental property:

(a)    Cash Flow is also known as Annual Net Operating Income…….

At the end of each year of renting your rental property, you are able to calculate the income or loss after you have allowed for all the annual expenses you have incurred during the rental of the property.

We need to arrive at an Annual Net Operating Income for your rental property. This is achieved by the following 3 steps :

(1)    Calculate the total rent collected over the 12 month period the rental property  was rented.

This is called Annual Gross Rental Income ( A)

(2)    Add up all the money you have spent over the same 12 month period in relation to owning and maintaining your rental property. These costs / expenses should include such things as your mortgage or Note Payment,  insurance costs,  management fees,  taxes,, etc…

This is called Annual Total Operating Expenses (B)

(3)    Using A and B above, we then work out what is called the Annual Net Operating Income (C)

Use the figure from (A) and subtract the figure from (B).  The resulting figure is the Annual Net Operating profit (C).

This is often called CashFlow.

Please note,  a positive Cash Flow means that you are in profit!  (the expenses on the rental property have been less than the rent collected)

Should you have a negative Cash Flow (the expenses on the rental property have been more than the rent collected),  you have made a loss!

If you find you have made a “Loss” don’t panic!! Whilst you own your rental property, you are always going to benefit from any increases in property value (increase in equity),  thereby increasing your Capital Gain should you sell your rental property in the future.

It is important you do the above calculation before you actually buy a property,  as the answer will go a long way to helping you decide if your investment in a rental property as part of your property rental portfolio,  is going to be worthwhile.

The next article in this series of 3 mini articles is going to look at Calculating your Budget

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