What are you really saying when you say cash flow?

[Kent Nielson]

First of all I want to say that cash flow is not the leftovers after you collect rent and pay the mortgage. I see conversations all over BP talking about cash flow and it gets very misleading and confusing. Especially to newbies like me. I can read something and know for a fact they're not taking into account vacancies, or repairs, or ANYTHING...besides just paying the mortgage and they say they're cash flowing.  Can we all agree that if your mortgage is 1,000 and your rent is 1,100, YOU ARE NOT CASH FLOWING $100 A MONTH. I personally feel like saying this.

If you collect rent, pay the mortgage, taxes, insurance, set aside some for vacancies(even if there's high demand), CapEx(even if it's brand new), repairs(even if you have the best tenants on the planet), property management, (even if you're managing it yourself right now. Who knows what will happen down the road), HOA fees(those change over time), and any other expenses in the foreseeable future...If you pay all of those and you have money left over...THEN you have cash flow. I don't think you should be allowed to say you have cash flow until you set aside money for all those things. Amen.

[Jay Hinrichs]

Originally posted by @Kent Nielson:

Hey @Brian Adzadi ! That's true, it's much more prevalent with the newbies. I don't have much room to talk since I'm super new myself lol. But sadly I've seen and heard fairly experienced investors talking about cash flow, not taking into account some of those items. I realize each situation is different, yada yada. It's a fantasy, but I wish the industry standard was to run your numbers while taking into account ALL of those future costs, regardless if one may not apply to your specific situation. I think it would produce more sound investors, and keep people from talking themselves into deals because they think that some costs may not apply. Anyway, it probably doesn't matter but it sure felt good to get it off my chest lol. 

you have COC return that out of the gate and you have IRR that you achieve at exit. you wont know how U do on a property until you sell it.. If you never sell it then you need great records to see over say a 20 year hold how you actually did.. I suspect most are not that accurate book keepers and really don't know.. and especially if its out of state I rarely hear investors adding in the cost of travel to their overhead..

The Aussies always talk about rentals as Gross yield and of course we have an appraisal method in the US that is GRM Gross rent Multiplier.. end of the day though I think most will have done pretty good if the tenant just pays their mortgage for them and they end up with a free and clear asset 20 years down the line.. those that take 30 year mortgages on rentals not sure why they do that..