By Michael Rossi Many of the popular real estate gurus make claims that simply are not true when it comes to cash flow. I have seen gurus claim that subtracting the mortgage payment from the gross rent yields cash flow. Many new investors seem to believe this. More commonly, these real estate gurus will offer a formula claiming that cash flow is found by subtracting the mortgage payment, real estate taxes, insurance, maintenance, management, and vacancy allowance from gross rents. While this formula is much better than the first formula, it is still so far from the truth that using it in the real world can spell disaster for the new rental property investor. The TRUTH is that any formula for cash flow MUST include all of the expenses listed above and evictions, advertising, court costs, legal fees, capital expenses, damage done by the tenants, exterminations, lawsuits, fuel for your vehicle, entity maintenance, office supplies, and many, many more!
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Cash Flow is King for Rental Properties
The vast majority of new businesses fail in a short period of time. That is especially true of new rental property businesses. The number one reason for these failures is that the new landlord did not have sufficient cash flow to pay the bills. Why didn't these new landlords have sufficient cash flow? Very simply, they didn't know how to accurately calculate cash flow before they bought their property.
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