Cash flow real estate

Last updated 26.10.2021

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The term cash flow should be widely known, but it is mostly associated with the balance sheet of companies. But also real estate also has a cash flow and this is crucial for investors.

The cash flow is an important indicator because it shows whether positive or negative cash flows arise from a real estate investment. It is therefore a basic indicator for every investment property that comes into question for an investor and should be examined more closely. 

Definition cash flow real estate

The cash flow compares income and expenses incurred in connection with a rented property. If the income exceeds the expenses, one speaks of a positive cash flow. If the expenses are greater, the cash flow is negative. Cash flow properties are characterised by a positive cash flow. 

The famous book "Rich Dad Poor Dad Cashflow Quadrant" by Robert T. Kiyosaki is about striving for a positive cashflow. positive cash flow. He describes that there are basically four quadrants in which income is generated. On the left are employees and the self-employed.
They exchange money for time and are on the active income side. On the right side are entrepreneurs and investors. An entrepreneur makes other people work for him, an investor makes money work for him.
Keyword: Building passive income.

The big difference between these two groups is that entrepreneurs and investors on the right side of the quadrant make themselves independent of their own limited working time. Here lies the key to cash flow.

Now, it is not that difficult to be active in several fields. Employees or the self-employed can also be active as investors and achieve a positive cash flow. 

Cash flow real estate

A well-maintained property without a maintenance backlog sooner or later becomes a money printing machine when the loan has been repaid.

Now many may think, "I don't have the money to invest." That's where the leveragecomes in . You don't need a lot of equity to invest in a property, for example. With a financing comparison, you find the best conditions, finance your property through a bank and have your tenant pay off the loan.

The only thing to note is that it is a property with a positive cash flow. If you would like to know where to find such find such cash flow propertiesyou are welcome to take a look at our existing properties. We have already done the maths for you.

Calculate cash flow Real estate

How do you calculate the real estate cash flow? In simple terms: Expenses are deducted from income. If there is money left over, the cash flow is positive. In the same way, the real estate yield can be calculated

Hierzu ist es zunächst wichtig zu wissen, welche Ausgaben tatsächlich anfallen. Grundsätzlich lassen sich die Ausgaben auf die Kaufnebenkosten (Grunderwerbsteuer sowie Notar- und Grundbuchkosten), die Darlehenskosten (Zinsen und Tilgung), die Instandhaltungskosten beziehungsweise -rücklage und die Verwaltungskosten herunterbrechen. 

The real estate transfer tax varies from federal state to federal state. On average, however, it is around 3.5 %. For notary and land registry costs, you can expect about 1.7% of the purchase price.
Unfortunately, these costs are not negotiable, as both notaries and land registry offices are subject to a fixed scale of fees. These costs
are the ancillary purchase costs that are added to the purchase price when calculating the cash flow and are thus part of the total investment .

Other costs such as maintenance, administration, repayment and interest on the other hand, are variable and can still be structured somewhat by the buyer. Especially in the case of management costs, it depends on whether the buyer wants to take care of the management tasks himself or whether he prefers to hand them over. The less work with the property, the higher the management costs, the lower the cash flow.

The expenses are now compared with the rental income. 

The difference represents your monthly income - provided it is a surplus and thus a positive cash flow

Cash flow calculation

An example of a cash flow calculation could look like this: 

Example calculation of an income property with positive cash flow

Positive cash flow real estate

A property that has a positive cash flow brings you money on a regular money. This is not the case with every real estate investment, as there are unfortunately also a large number of negative cash flow properties for which investors have to pay out month after month. To achieve a positive cash flow, however, there are a few things you can do.

For example, there are items in our example calculation above that are variable. Interest rate and repayment are negotiable and there is often something that can be done about the management costs as well.
On the other hand, rental income should be as high as possible. This depends not only on the condition of the property, but also on the location.
We advise you conditions and make it possible for you to financing at the best possible conditions.

Cash flow through real estate

As mentioned above, there are many people who think they do not have the necessary capital to become a real estate investor. And often they also lack the necessary knowledge to buy a lucrative property select.

But we experience time and again that our clients are surprised at how easy the path to their first property is. And in most cases it doesn't stop at one property, because a second and third real estate investment is quickly sought. And so many of our clients already earn a considerable passive income with their cash flow income properties .

What is a good cash flow?

This question gives the impression of being quite easy to answer:

Positive cash flow = Good cash flow
Negative cash flow = Bad cash flow

But it is not that simple.

Stellen Sie sich vor, Sie kaufen eine aktuell bereits vermietete Wohnung etwas unter Marktwert an. Der leicht günstigere Preis kommt deswegen zustande, weil der aktuelle Mieter ein 80-jähriger Rentner ist, der seit 20 Jahren ohne Mieterhöhung in der Wohnung lebt.

The cash flow of this flat probably does not look good at all. Low rental income is offset by high negative cash flows. 

After two years, your tenant dies at the age of 82. What is sad from a human point of view, however, now enables you as the owner to re-let the flat at market conditions. 

Suddenly, the unchanged expenses, mainly for interest payments and repayment of the loan, are offset by significantly higher rental income. The cash flow changes radically and is "suddenly" significantly higher. positive

You see: Cash flow only says something about the ACTUAL state of your home's cash flows. "What is a good cash flow?" - so this question has to be classified and answered taking into account the current and future framework conditions. 

So, depending on the investor's time horizon, a negative cash flow can be tolerated for some time in some cases, as long as the investment in a flat pays off in the future. Others of our clients want a positive cash flow from day one. We can realise both wishes because we develop properties ourselves and have various cash flow variants "in stock" at all times. 

Is a cash flow property something for me?

Let our experts advise you without obligation. Arrange an information session now on the phone, online or for an appointment in the office.

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