Whether you’re buying your first rental property or you’re a seasoned investor looking to expand your portfolio, accurately predicting cash flow is an important part of investment property success. Investment property cash flow analysis is more complicated than just calculating income and expenses on a spreadsheet or the back of a napkin. It’s critical to calculate all the recurring expenses and one-time fees associated with each property so that you know how much money to expect to make from the investment.

The easiest way to analyze a potential rental property is with the 50% rule, which states that a rental’s operating expenses should not exceed 50% of its total income. This is an excellent starting point when analyzing a new property, but it should never be used in lieu of a full-fledged rental property analysis.

To accurately predict cash flow, you’ll need to project annual rents, add in extra income for things like property taxes, HOA fees, insurance costs, and maintenance, as well as estimate the cost of vacancy for each property. Using an online calculator such as BiggerPockets’ Rental Property Calculator is a great way to ensure your math is correct and that you’re accounting for everything that might go into owning and managing an investment property. Also read https://www.happygoluckyhomebuyer.com/

Another metric to consider when evaluating a potential investment property is its debt service coverage ratio (DSCR), which measures the amount of cash left after subtracting the mortgage payment from the total income. This is an important metric to look at because it determines how much of your income will be dedicated to paying off the loan. Typically, lenders want to see a DSCR of at least 1.25x or higher in order to be willing to lend you the money to purchase a property.

Unanticipated expenses can derail an investment property’s cash flow, such as hefty maintenance fees or nightmare evictions. While these expenses may not happen often, it’s important to have a good idea of how they will impact your profitability so that you can prepare for them.

A key step in investment property success is working with a real estate agent who has experience with purchasing and selling investments. A good real estate agent will be able to help you negotiate the price of a property, as well as run a CMA and cash flow analysis. In addition, a real estate agent will have access to listings before they hit the market, which can be helpful in finding deals before other investors have a chance to snag them.

Aside from having an experienced buyer’s agent on your side, it’s also crucial to work with a lender that understands the needs of investment properties. If you’re looking for a lender that can offer financing to investors, try Roofstock. Its Neighborhood Insights feature combines data at the census tract level to assess neighborhood risk and reward, including school district quality, employment rates, home values, and more. With the ability to calculate cash flows at a neighborhood level, you can find the best investment property for your needs.