Creating Cash Flow From Thin Air
Thunder Bay Real Estate - Know Your Numbers - Part 1
So you've been scouring the Thunder Bay real estate listings and you've finally found a rental property worth looking at. The first thing that you want to determine is Cash Flow or Net Operating Profit before investing. That is exactly what we will cover in this article.
The core of this calculation is actually very simple.
(Money In) - (Money Out) = Cash Flow / Net Operating Profit
Ideally you would want your income to exceed your expenses. However this may not always be the case and that is where a human element should come into the calculation.
You might look at a rental that has negative cash flow if you have done your research and have come to the conclusion that the current landlord has just been "too nice" or maybe even lazy and has not increased the rent for many, many years and the current rent that is being collected is below the current estimated market rent for the kind of property that you are looking at. We will discuss how to determine "market rent" for Thunder Bay real estate in a future article.
Another "Cash Flow Enhancer" would be to look at the current operating expenses for an existing piece of real estate and see if there are any expenses that could be eliminated, minimized or reduced upon your takeover of the property.
In the case of a single unit rental property in Thunder Bay you could look ask if the tenant or the landlord is paying a part of or any of the utilities. You can off load this expense onto the tenant if possible.
You may even offer to guarantee no rent increase for the next two years if they assume this expense. By doing so you will be eliminating a variable expense that can creep up on you over time and suck away at all your free cash flow.
You might even see an opportunity to fix up the rental to met more of an "upscale" demand and profit from higher rents for that market.
Or you may see a way of taking a single family house and creating multiple units and therefore multiple monthly incomes. This would be what I call finding an overlooked or underutilized asset.
We'll cover more about overlooked assets in Part 2!
You can find an excellent real estate opportunity in Thunder Bay just by visiting http://www.MyThunderBayRealEstate.com.