Use a cash flow calculator to see if you have enough cash flow from your income property. Read to find out how it can help with your investment.

Table of Contents

  1. What Is a Cash Flow?
  2. What Is a Good Cash Flow for Rental Investments?
  3. What Is the Best Cash Flow Calculator Available?
  4. Subscribe to Mashvisor to Get Started

Real estate investors should know how their investment properties perform by regularly reviewing their income, expenses, liabilities, and cash flow. One of the important benefits of real estate investing, especially in rental properties, is the ability to generate cash flow.

It’s very important to know how much cash flow an income property generates to ensure that it can cover your operating expenses and payables. In such a way, it would be easy to see how much return your investment is earning.

However, calculating cash flow manually may not be a simple process, especially if more than one investment property is involved. Thankfully, you can rely on a cash flow calculator available online to help make the process a lot easier.

To find the best calculator for cash flow computation, you should know what your business needs and determine the essential aspects of cash flow calculators that you should prioritize.

What Is a Cash Flow in Real Estate?

Cash flow refers to the inflow and outflow of cash or cash equivalents in a real estate business. A positive cash flow is the net amount of money an income property generates after paying its expenses and other liabilities. There are three kinds of cash flow that you should understand in real estate investing: free cash flow, discounted cash flow, and operating cash flow. You can calculate cash flow in real estate using a rental cash flow calculator.

What Is Free Cash Flow?

Free cash flow (FCF) is the cash or cash equivalents generated from an income property after paying operating and capital expenditures. For instance, you pay for expenses like property management fees, taxes, repairs and maintenance, insurance, utilities, HOA dues, mortgage, and other fees. The money left after paying these expenses is your free cash flow, which you can use as you please.

Free cash flow is an essential measurement that shows whether or not an income property is efficient in generating cash. It’s critical to know how to calculate and analyze your free cash flow to help with your cash management. Being able to determine your free cash flow using a cash flow calculator can help you make informed business decisions. The more free cash flow you have, the quicker you can pay down your debts and build your investment portfolio.

How to Calculate Free Cash Flow in Real Estate

With a free cash flow calculator, it would be easy to calculate the free cash flow generated from an income property. You can also manually do the calculation using the following formula:

Free Cash Flow = Net Operating Profit After Taxes − Net Investment in Operating Capital

 You can use the following formulas to compute the net operating profit after taxes (NOPAT) and operating income:

Net Operating Profit After Taxes = Operating Income × (1 − Tax Rate)

 Operating Income = Gross Profits − Operating Expenses

What Is Discounted Cash Flow?

Discounted cash flow (DCF) is a valuation method that uses an investment property’s expected future cash flows to estimate its value. A discounted cash flow analysis aims to determine the current value of an investment property based on its future cash flow projections that are discounted for risk. Property owners typically use the discounted cash flow value if they plan to sell their income property or make investment decisions, such as capital budgeting.

Income properties with riskier cash flow streams are typically discounted at higher rates. If your rental property investment can generate more certain cash flows in the future, they are discounted at lower rates. Prospective real estate investors buying an investment property can also use the discounted cash flow analysis to get an overview of the accurate value of an asset.

How to Calculate Discounted Cash Flow in Real Estate

When calculating the discounted cash flow, it’s recommended to use a discounted cash flow calculator to get a precise value. You can also do this yourself through the following steps:

  1. Forecast cash flow: Determine the expected future cash flows from the investment.
  2. Select a discount rate: Determine the discount rate based on the cost of financing, risks, and other opportunity costs.
  3. Calculate the discounted cash flow: Discount the forecasted cash flows using a cash flow calculator, a spreadsheet, or manual calculation.

The formula for discounted cash flow is:

Discounted Cash Flow = CF1 / (1 + r1) + CF2 / (1 + r2) + CF3 / (1 + r3)

 Where:

  • CF refers to the cash flow for the given year (for example, CF1 is for the first year, CF2 is for the second year, and so on); and r is the discount rate for the corresponding year.

What Is Operating Cash Flow?

Operating cash flow (OCF) refers to the amount of cash or cash equivalents generated by an income property based on its normal business operations. Investors use the operating cash flow analysis to determine whether a rental property can generate an adequate positive cash flow to maintain its operations. A negative cash flow means investors need external funding to support the property’s business activities.

Operating cash flow focuses on the cash inflows and outflows related to a rental property’s major operating activities. It includes rental income, property management fees, maintenance costs, utilities, and association dues. Investing and financing transactions are not part of the operating cash flow analysis, such as mortgages and buying appliances.

How to Calculate Operating Cash Flow in Real Estate

You can use an operating cash flow calculator to compute the operating cash flow of a rental property. However, you can also do it by subtracting the actual cash outflows from the cash inflows, which is the direct method of calculating OCF. Note that you should not include your mortgage payment and any capital expenditures.

The operating cash flow formula is:

Operating Cash Flow = Total Cash Received – Cash Paid For Operating Expenses

What Is a Good Cash Flow for Rental Investments?

If you want to determine whether an income property for sale is worth investing in, you should first find out how much net cash flow it generates. In general, a positive cash flow (after deducting all expenses and liabilities, including possible vacancies) is considered good. The bigger the positive cash flow a rental investment property can generate, the better for the investor. However, different investors have varied opinions on what makes a rental cash flow good.

You can look at the projected return on investment from a rental property to determine whether its cash flow is sufficient. Or, you can also consider the cash on cash return or a cap rate of an investment property to decide if it generates adequate cash flow. You may also use a cash flow calculator to determine the values for the metrics.

Cash Flow Based on Return on Investment (ROI)

The return on investment shows how much profit you earn from a rental property versus the capital you invested. To compute the ROI of an investment property, you need to divide the net cash flow versus the property cost. You can use the following formula to compute the ROI:

Return on Investment (%) = (Net Cash Flow / Property Cost) × 100

 For example, a rental property that costs $200,000 generates an annual net cash flow of $20,000. You can use an annual cash flow calculator to determine your net yearly cash flow.

Using the above formula, we compute the return on investment as follows:

ROI = ($20,000 / $200,000) x 100 = 10%

It means the ROI of our sample rental property is 10%. Depending on the rental strategy used, most investors are happy with a 6% to 8% return. If the ROI of a particular rental property falls around 6% or 8%, the cash flow generated from this property is considered good. Of course, the higher the ROI, the better.

Cash Flow Based on Cash on Cash Return (CoC)

The cash on cash return is an important metric that compares the net profit generated from an investment property versus the amount of money invested. If you purchased the property through a mortgage, you only need to take into account the actual cash you invested (not loaned). It includes the down payment and the closing costs if you pay them in cash. Note that we do not use the total property cost to compute the CoC return.

Here is the formula for calculating the cash on cash return:

Cash on Cash Return (%) = (Net Cash Flow / Cash Invested) × 100

For instance, if you make a down payment of $30,000 on a rental property that makes a net cash flow of $4,000 per year, your CoC return is:

CoC = $2,600 / $30,000) x 100 = 8.67%

In this case, the cash on cash return is 8.67%. What makes good cash on cash return depends on the property’s location, which varies per investor. Usually, most investors consider good cash on cash return to be 8% or higher. However, in some cities, even CoC returns of 3% to 4% are acceptable.

Understanding the 1% Rule

Some investors use the 1% rule to identify properties with the potential of becoming profitable investments. The 1% rule is a quick way to check if a rental property will generate a positive cash flow, especially if the expenses on the property are not available. The said rule is quite simple, and it helps you determine what rent estimate of a property should be to make it a worthwhile investment.

According to the rule, you should be able to rent a property for at least 1% of the purchase price. If the current rental income a property generates is less than 1%, it means it doesn’t provide enough cash flow to make it a good investment.

Let’s say you’re considering a property with a selling price of $120,000. Based on the 1% rule, the monthly rental income should be at least $1,200. Anything less than the said amount means the investment property is not worth your time and money. If you choose to use the rule, you won’t need a cash flow calculator rental to determine if a particular income property is worth investing in.

Mashvisor can help you calculate an investment property’s cash flow and ROI. Start a free trial now to learn more.

What Is the Best Cash Flow Calculator Available?

The best cash flow calculator should accurately calculate the cash flow from a rental property based on its expected income and expenses. While several cash flow calculators are available online, not all can provide accurate estimates of a property’s financials. Do you want to see an in-depth overview of a rental property’s financial information and compute its cash flow simultaneously? This is made possible with Mashvisor’s rental property calculator.

Why You Should Use Mashvisor’s Cash Flow Calculator

The best thing about Mashvisor’s rental property calculator is that it does not only compute for cash flow. It is an all-in-one real estate investment calculator that provides investors with the figures they need to make an informed investment decision. Mashvisor can estimate the expected rental income, expenses, financing costs, and potential profit from a particular investment property.

The best investment property cash flow calculator should help you decide whether a specific rental property is worth investing in. Mashvisor’s income property calculator has the following essential features:

  • Property Search Feature: Mashvisor does not only provide an investment calculator—it offers a database that lets you search for a potential investment property. Its unique algorithm allows you to search for a property using custom filters like location, budget, rental income, number of bedrooms, etc.
  • Traditional and Airbnb Analytics: Mashvisor provides comprehensive analytics for both traditional and Airbnb to show side-by-side the best rental strategy for a particular property. In addition, Mashvisor’s Airbnb calculator can estimate how much income you can earn, considering the occupancy rate, financing method, and expected expenses.
  • Real Estate Comps: Besides rental strategy, Mashvisor also provides auto-generated real estate comps for traditional and Airbnb listings. It allows you to compare similar properties and consider other listings.
  • Accurate Estimates of Real Estate Data: Mashvisor’s in-depth research and analysis provide a comprehensive estimate of relevant data such as rental income, expenses, and occupancy rate. This way, you do not have to do your own research to know how a property performs.
  • Investment Balance Payback Feature: Mashvisor also offers a feature that calculates ROI and presents the data to show how your investment will pay back in the future. The investment payback computation is based on your preferred financing method, and it shows balance payback for both traditional and Airbnb rental strategies.

How to Use Mashvisor’s Cash Flow Calculator

To use the Mashvisor’s rental property cash flow calculator effectively, you should first understand the following important terms that you will likely encounter:

  • Rental Income: The amount of rent you will receive monthly from your tenants.
  • Monthly Expenses: The expenses that you expect to pay monthly, including insurance, utilities, property management fees, tax, HOA dues, and maintenance fees.
  • One-time/Startup Costs: The one-time initial costs of an investment property. The one-time/startup cost typically refers to the loan closing cost, inspection cost, improvement cost, and cost of furniture and appliances.
  • Mortgage: A loan agreement used to purchase the property, and the borrower uses that property as collateral.
    • Property Price: The selling price of the property listed on the platform.
    • Down Payment: The initial payment for the purchase of the property. It is typically paid if the property is purchased through a loan.
    • Loan Amount: The amount of money you owe a lender under a mortgage.
    • Mortgage Type (Fixed-rate or Adjustable-rate): The type of mortgage you choose. A fixed-rate mortgage comes with a fixed interest rate for the entire loan term, regardless of market conditions. An adjustable-rate mortgage comes with a variable interest rate that may adjust periodically during the life of the loan based on market conditions.
    • Loan Term/Duration: The period of the loan from the first amortization to the time you are expected to pay it off. The typical loan terms are 15 years and 30 years.
    • Interest Rate: The rate of interest the lender charge on a mortgage.
  • Cash on Cash Return: The net profit generated from an investment property to the total cash investment. The CoC return varies depending on whether you purchase the property entirely in cash or with a mortgage loan.
  • Cap Rate: The ratio of the net operating income to the property’s purchase price or the current market value. The way you acquire the property, whether in cash or with a mortgage loan, will not change the cap rate value.
  • Occupancy Rate: This is the ratio of the number of days/months for which a rental property gets rented over the total number of days for which it is vacant.
Cash Flow Calculator

Mashvisor’s Cash Flow Calculator allows investors to put in the relevant metrics to calculate the return on investment from their investment property.

Using Mashvisor’s cash flow calculator is relatively easy and it is recommended even if you are a beginner investor. The following steps will guide you on the simple process:

Step 1: Search for a Property

Using the investment property search tool, look for a rental property based on your preference. You need to input your chosen location (city or neighborhood) to start your search. Mashvisor’s database contains thousands of listings available for sale, making it easier for you to find the best investment property. You can also narrow your search by using custom filters such as location, budget, property type, number of bedrooms, and number of bathrooms.

Step 2: Choose a Property From the Search Results

Mashvisor will then show a list of properties that match your search filters. Choose a property that interests you, click on it, and it will lead you to an in-depth real estate market analysis. You will see the property valuation analytics for traditional and Airbnb real estate strategies, including crucial data like rental income, cash flow, cap rate, and CoC return. You will also see more information about the property characteristics and tax history.

Step 3: Choose a Financing Method

Mashvisor provides a mortgage calculator that allows you to overview your amortization and your average cash on cash return if you decide to buy the property through a mortgage. You can adjust your preferred term, mortgage type, and interest rate. The investment payback balance table also shows how long it will take to earn a return on investment based on your chosen financing method.

Step 4: Add Your Custom Expenses

Mashvisor provides estimates of the primary expenses associated with the property, such as insurance, utilities, property management fees, taxes, cleaning fees, and HOA dues. If you think other costs are not included in the list, you can add your own figures and make the necessary adjustments to get a more personalized computation.

Step 5: Compare the Rental Strategies

You will see a side-by-side comparison of the property’s financials based on traditional and short-term rental strategies. Mashvisor’s cap rate calculator allows you to see which rental approach is best for that particular property based on your financing method, custom expenses, and the property’s market value.

Step 6: Make a Decision

Once you’ve seen the financials of the property and its corresponding estimated returns, you can decide whether to pursue the investment or not. With just one click, you can quickly contact the agents who can assist you with the deal. If you think the property is not worth your money, you can find similar properties in the same area right at the bottom of the page. You may also search again using a different location and filters.

Subscribe to Mashvisor to Get Started

Another reason why Mashvisor’s rental property calculator is the best cash flow calculator option is that it offers special features like Neighborhood Analysis and Mashmeter.

Neighborhood Analysis allows you to see the breakdown of property types for traditional and Airbnb listings in a specific neighborhood. You will also get an overview of the occupancy rate, rental size distribution, rental income statistics, and historical rental income.

Mashmeter is a unique tool, presented as a percentage, that shows whether a particular neighborhood will be good or bad for real estate investing. The tool provides a reliable score based on actual historical data and analysis. With the data, you can easily compare areas and decide which one is best for your preferred real estate strategy.

When you’re ready to invest in a rental property, schedule a demo with Mashvisor today.




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