All Forum Posts by: Sriram Kumar Bikkina

My house doesn't have a basement either. 

@Sriram Kumar Bikkina , thanks for providing more info . I haven't  heard of any specific  issues with a home without a basement due to crawl space . Maybe someone in this forum with some more reno experience might be able to help lol 

Your deal sounds good otherwise !!

@Chris Baxter I second your thought process. I've had friends try to get into the real estate game in Ontario and the prices of houses just don't make sense. It's like the point of diminishing returns. Are you going to rent a 720k house for $7,200 when area rents either way below this price point or non existant?

@Sriram Kumar Bikkina, I also consider depreciation to be akin to cash flow, so if my actual cash flow is zero or a little above that I know I’ll be gaining more income reduction benefit from the property and the loan gets paid down over time.

Not sure about Canadian laws, but here in the US we can do a cash out refi and pull the money out tax free. The difference between this method and cash flow is that it takes longer to receive my mailbox money but it serves the same purpose and it’s tax free!

Hope this helps!

 Interest is absolutely an expense and should be included in cash flow calculations. Not including that would also be fudging the numbers. I would argue it is more important to understand the numbers. You may pay all cash for a property and have $1000 cash flow, but that isn't necessarily better than 100% financing and have $0 cash flow. It really depends on your goals and other benefits of the acquisition. As you pointed out, other factors such as taxes play into an investment. You have to look at MORE than just cash flow. Debt pay down, equity increase through appreciation, rent appreciation, future refinance, tax benefits are all other ways an investment can benefit you beyond cash flow. Thinking one dimensionally about anything is dangerous. 

That all being said, properties without cash flow can be risky. If you are just breaking even on all your properties, you may need to subsidize them with other income. That could be your W2, cash savings or other investments. 

Bottom line, keep your math accurate, but also understand what it represents. Run multiple metrics, not just cash flow.

@Sriram Kumar Bikkina I would not consider the interest on your HELOC as an expense on the property for cash flow determination. Interest paid to earn investment income is tax-deductible (in this case, on your personal tax return). Per @David Steinbok's point, though, the whole point of doing a cash flow calculation is to be hinest with yourself and to make sure you aren't funding the property every month. Many people will fudge numbers during analysis to have a property with +ve cash flow, even though in reality this is not the case.  

Cash flow is money left over from rent after all your expences are paid. That includes mortgage payment. If you are borrowing your downpayment and that is an expence, then I would definitly add that into your calculation as well. The purpose of buying rentals is to not use any of your paycheck money to carry the house.  So if you have to borrow the down payment as well, then your house should pay for that. Otherwise to me, that is still a bad investment. 

Generally the cash flow calculation does not include interest expenses on the down payment. 

Ultimately you get to decide what your definition of cash flow is. 

Good luck and pick what works for you