How to Succeed at Real Estate: Cash Flow Analysis

As you start gathering momentum in your real estate career, you will begin to notice a steady pattern of cash going in and out of your pocket. This is considered cash flow in the most simplest form. Cash flow analysis can be as simple or advanced as your needs determine. The investor who has dozens of property will likely have a much more advanced and complicated cash flow analysis than the investor who has their first piece of property.

What this means for you, is there is no reason to start doing advanced and complicated analysis. This gives you the ability to start small and simple and work your way slowly towards the more advanced details that become required later on. This will help make sure you make good decisions because you are able to learn slowly and steadily what parts of the cash flow to focus on to maximize profits.

Your cash flow analysis should at the very least tell you how much profit you can make as well as how much it will cost for you to make that profit. The cash flow will analyze all money that is spent on each property, as well as all sources of income that the property presents to show hopefully if you selected a good piece of property a positive cash flow. A cash flow analysis has four basic areas to it to determine profit.

The first area is gross income, followed by expenses, with debt service and cash flow following behind. The first section is gross income; it is within that section that you will figure out your effective gross income. First, to begin you need to determine the Estimated Annual Gross Income for the property. For example if you are planning to rent the property, then the Estimated Annual Gross Income would be the monthly rent multiplied by 12, the reason for 12 is because you are trying to determine based upon a yearly basis.