Real Estate Cash Flow Analysis
Welcome to REI TV. If you are going to get serious about the game real estate, you really got to know how to crunch your numbers. And so today, what we’re gonna be talking about specifically is how you actually do a cash flow analysis, understand what your ROI is, so that you can really look at a property and know whether you’re getting into a really good deal or a bad deal.
Let’s jump right into cash flow analysis, and I wanna talk about why for risk management and profitability. I focus on single family homes. Uhm… I make this book available to people, in fact you can, you know, look below to get details on how you can access an audio of this for free. Strait path to Real Estate Wealth – the book is how you make money in any market and really this part, page 99 is really going to address cash flow analysis. So take a look at what we have here, uhm, on this line, I’ve got three different lines moving forward. You’ll notice that this line right here is about your lease income and notice that it is slightly increasing. Then you have here the price of the house, this might be like a $100,000 or an $80,000 house and as we move up the line maybe this is a million dollar house. And then this dotted line below that’s the equity line. That’s how much I am buying the house below market, okay. Now let’s talk about, right here what I’ve labeled “sweet spot”. Uhm… I do a minimum of a three bedroom home and then right here is the median and up here is your breakeven. So for example, if I buy a three bedroom home, I’m gonna be in the “sweet spot” for getting maximum cash flow and equity. Does that mean that I buy townhomes and condos? NO. Does that mean that I buy two bedroom homes? Never! Why? Because I’ll actually, I’m gonna correct to the book here, would be more accurate to show what happens to my rent line – that as I go that direction there’s a steep declining in the cash flow. Even though those homes cost less there are less people that want two bedrooms versus a three or four bedroom. So that’s why I buy single family homes and the reason why I buy them below the median, check out this other trend. As the price of the home increases, look at this breakeven right here, it means this is where I probably write around like a $250,000-$300,000 price point. Uhm… If you buy investment grade real estate over a quarter million dollars you usually can’t get it to cash flow. You are outside of the “sweet spot”. That’s another reason why I don’t go up over the median. For me, I actually, purchase as far as I can below the median without ever getting into condos and townhomes. And that puts me into the “sweet spot”, right here, in a position for AMAZING Cash Flow and AMAZING Equity.
So what am I really trying to tell you here? All I’m saying is that, if you buy a single family home, below the median with equity that you stand the chance of having the highest cash flow. Now there’s only one more thing that you can do beyond that that’s gonna give you an extreme leg up. And you know what that is? That’s getting out of your backyard and going into the places that are currently the best markets that actually have the most ideal circumstances, the best equity place and the best cash flow. And search on this channel for some of those videos because you’re gonna learn more about that.
Thank you so much for watching REI TV. Look forward to seeing you next Wednesday. And, aahh… hopefully you find yourself just a little bit more intelligent after watching this week’s episode on how you do that “Cash Flow Analysis”. To really know whether you got the right strategy, the right deal in front of you worth biting on. With that, don’t forget to subscribe and we will look forward to seeing you next week.
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