Hi all,
First time post but please don’t howl me down for what may seem like a silly question.
When is a IP truely +CF – now I know that most will jump straight on board and say “when your rental income exceeds your costs”. Well, what are the finance costs based on as a general rule of thumb?
Should they be 100%, 80% (meaning the other 20% has to come from somewhere – are these funds factored into determining a +CF property)? IO or P&I?
I’ve just finished reading Steve’s book $1M property in a year and I get the impression that he bases things on a 80% P&I loan repayments. If so, is the other 20% ignored for some reason?
Please make things clear for me as I look to restructure my portfolio.
Thanks.
Personally I’d only consider it genuinely Cash flow positive if it’s 100 % finance , including all additional cost , stamp duty , solicitors fees etc.
Though I’m sure many people will have a different opinion. [biggrin]
See Change
mtairs,
I’d be calculating it on income minus price + expenses. Simple. If you have a buck in your hand after all of this, then that is your positive cashflow. But you’ll have to pay tax on the buck
kay henry
I believe that if the annual returns of the property can cover all of the annual expenses then it’s cashflow positive.
I regard acquisition costs as a necessary evil, and dont take this into account regarding positive cashflow.
As you can see it’s a matter of opinion, and of emotion. I tend to see change’s view that if you borrowed absolutely everything and still turned a profit it would be CF+. However, the simplest definition is that after everything including tax refunds if you ended up with a dollar, it’s cashflow positive.
I don’t think it’s important, what is more so is how it fits with your strategy and how repeatable the deal is. For YOU.
Best wishes, and welcome.
I think you need to look at two things seperately before considering whether a property is worth holding. Any property can be cashflow positive depending on how much cash you put in at the start. If income exceeds expenses (excluding tax and depreciation), I consider it positive.
I then look at the cash on cash return. If this is good, then the investment is a good one.
As for loan considerations, interest rate movements can make a positive property turn negative and vice versa. This also has to be considered.
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