The opportunity for profit is one of the primary reasons why property owners, such as yourself, choose to rent their spaces to tenants. However, you must manage your expectations and carefully strategize so that you can scale your rental property income without leaving any of your expenses uncovered.
Calculating Cash Flow From a Real Estate Perspective
First and foremost, “cash flow” refers to the pattern of movement that money makes in and out of your rental business. The cash flowing in is the rent your tenants pay, and the cash flowing out is likely a combination of maintenance costs, mortgage payments, taxes, utilities, and other expenses. Whatever is left unaccounted for can be considered your profit.
Calculating your cash flow only takes a few simple math equations. Add up what your rental is taking in per month and subtract all of your expenses from that number. Your cash flow is what you have left over. For example, if you take in $1000 from rent each month and your expenses for operation are $800, your cash flow is $200 per month.
What Is Considered a Good Cash Flow for a Rental?
The first step to establishing a profitable rental is ensuring that your cash flow is (and remains) positive. A range of $100 to $200 per month is generally a good cash flow to start out with, and the goal is to scale up over time as rent increases. If the number ever dips into the negative, it means you’re losing money each month, and you’ll need to rethink your strategies to bring your flow back up.
Increase Your Profitability With Reliable Property Management
Entrusting your property to the hands of an experienced property manager is the best way to ensure optimal profit from your rental business. Contact Reliable Property Management today at (443) 869-3799 to learn more.