Net Cash Flow Before Tax

I am attracted to deals with Positive Net Cash Flow Before Tax. 

Gross Potential Income (GPI) assumes 100% leased, and we subtract operating expenses to reach Net Operating Income (NOI).  Then subtract Debt Service to reach Net Cash Flow Before Tax.

Gross Potential Income:

• Rental Income

Operating Expenses / Assumptions:

• Vacancy (8% – roughly 1 month)
• Management (10% of rental income)
• Utilities (Water, Sewer, Trash, Electricity, Gas – unless any of these are tenant paid)
• Maintenance (1-3% of the property’s value per year depending on age of property)
• Other Variable Expenses
• Insurance (Home Insurance for Renters + Liability Insurance)
• Taxes (Check your county tax website)
• Replacement Reserves / Capex – (5% of rental income)*
• Other Fixed Expenses (HOA)

 

Notes:

Replacement Reserves – Reserves for a new Roof, Flooring, Windows, HVAC, etc. (Great Explanation Here). My understanding is that replacement reserves have long been argued to be either above or below NOI.  From a buyer’s perspective these are real costs and I will include above the line assuming 5% of rental income.  Lenders also include these above NOI so I will be consistent from a financing perspective.  Sellers might try and put these below NOI.   In reality from a cash flow perspective once 6-12 months of rental income has been accumulated in a replacement reserves account than the cash flow may be used for additional investing.  Once the replacement reserve drops then continue to deposit 5% of rental income into the replacement reserves account.

Taxable Income – I should note that if Net Cash Flow Before Tax were negative, the loss may be offset substantially via tax loss savings from claiming Depreciation on your Schedule E, but I’d like the property to cash flow from a Net Cash Flow Before Tax perspective.  Any tax savings from depreciation will be a bonus!

 

 

 

 

Reading List

Here’s my reading info:

 

To Read

• The Millionaire Real Estate Investor
• The ABCs of Real Estate Investing

 

Reading

• The Book on Rental Property Investing – Brandon Turner
• Quiet – The Power of Introverts in a World that can’t stop talking – Susan Cain

My Bookshelf

• Rich Dad Poor Dad – Robert Kiyosaki

Introduction – Goals / Expectations

Hello!!

I am on a journey to do a ton of multi-family real estate cash flows in preparation for purchasing a property.  I’ll discuss my findings here and keep addresses anonymous.

Goals:

• To complete 1 complete cash flow per week and answer the question: do I think the property is correctly priced, over priced, or underpriced and what would I be willing to pay?
• To read 3 books per month which I will write reviews about in this Blog.
• To save $1,000 per month towards the purchase of my first property.
• To purchase my first multi-family property between November 2016 and June 2017.

The beginning cash flows will be very basic, and they will grow in complexity as I study and learn to develop a more intricate model.

I feel that I am well positioned to perform these calculations and will be able to develop a decent cash flow model as I am a commercial (private banking) underwriter by day.

Christine