Real estate investing is really about creating future cash flow. When searching for investment properties, you need tools to help you compare what is available and determine which best meets your income goals vs. the investment risk. It’s wise to consult with trusted family and friends or reach out to professionals to guide you as you dive into your new business venture as a real estate investor.
Just remember that, like a cog in the wheel of real estate investments, just like location can add long-term value, property management plays a pivotal role in the success and health of your real estate holdings.
When reviewing the books, you should understand that, at the very least, you’ll need to match their performance as a landlord to achieve the same results.
As a real estate investor, you must focus on earning the highest investment returns or ROI.
To ensure you are making the greatest possible returns on every deal, we will discuss the numbers that play a key role in the outcome of an investment. Professionals are intimately familiar with the calculations that help in this task.
For example, cash flow helps to determine the monthly income you’ll generate. Likewise, the cap rate determines the current market value and cash-on-cash return to understand the difference in return on your investment dollar of each potential investment.
So read on as we explore three important calculations every Raleigh, Durham, Clayton, Smithfield, Rocky Mount, Selma, Wilson, Goldsboro, Kinston real estate investor needs to know. Please note that this article is for informational purposes, not financial or legal advice.
Cash Flow
The number one goal of real estate investors is positive cash flow.
Calculating cash flow is an important metric for understanding the financial performance of your rental property. A positive cash flow means that your rental property is generating more income than expenses, which is a good indication that your investment is performing well. Here are the steps to calculate your rental property’s cash flow:
- Calculate the monthly rental income: Add up all the monthly rent payments that you receive from your tenants.
- Subtract monthly expenses: Subtract all of the expenses associated with your rental property, such as property taxes, insurance, maintenance, repairs, and mortgage payments. Make sure to include all expenses, including those that are not paid monthly but rather quarterly or annually.
- Calculate the net cash flow: Subtract the total expenses from the monthly rental income. If the result is a positive number, you have a positive cash flow. If it’s negative, your rental property is operating at a loss.
It’s important to note that a positive cash flow does not necessarily mean that your rental property is performing exceptionally well. It’s essential to consider other factors such as location, the condition of the property, vacancy rates, and the rental demand in the area.
To better understand the financial performance of your rental property, you can calculate its annual return on investment (ROI), which considers the cash flow as well as other factors like appreciation and the equity gained from mortgage payments. Additionally, you can compare your property’s performance to similar properties in the area to gain further insight into how it’s doing.
Professional investors from NC TLC Estate can help you navigate the numbers for the potential income and expenses to help you understand the process of this critical calculation every Raleigh, Durham, Clayton, Smithfield, Rocky Mount, Selma, Wilson, Goldsboro, Kinston real estate investor needs.
The professional investors at NC TLC Estate can help you find the best location to ensure long-term value and higher returns yet stay within your working budget comfortably, leaving room for unexpected expenses.
Cap Rate
Cap rate, or capitalization rate, is a tool that real estate investors use to evaluate the potential profitability of an investment property.
The cap rate is calculated by dividing the property’s net operating income (NOI) by its current market value or purchase price. The resulting percentage is the cap rate. For example, if a property has an NOI of $50,000 and a market value of $1,000,000, the cap rate would be 5% (i.e., $50,000 divided by $1,000,000).
Investors use the cap rate to compare different properties they are considering for their portfolio. A higher cap rate indicates a higher potential return on investment, but it may also indicate a riskier investment. On the other hand, a lower cap rate suggests a lower potential return but may indicate a lower risk investment.
It’s important to note that the cap rate is just one factor to consider when evaluating a potential real estate investment. Investors should also take into account other factors such as location, property condition, and potential for future appreciation.
Professional investors like NC TLC Estate are seasoned pros at determining the potential return on investments ROI or the losses you can expect when comparing properties to purchase. The professional investors at NC TLC Estate will help point the way for you as you learn the important calculations every Raleigh, Durham, Clayton, Smithfield, Rocky Mount, Selma, Wilson, Goldsboro, Kinston real estate investor needs.
Cash on Cash Return
Most importantly, the cash-on-cash return formula will show you how hard your money is working for you by telling you how much money can be earned based on your invested cash. This calculation does not use the total cost of the asset, only the amount of cash you would put into the deal. Cash on cash return is a ratio between the annual net operating income and the total cash investment. It is one of the essential calculations every Raleigh, Durham, Clayton, Smithfield, Rocky Mount, Selma, Wilson, Goldsboro, Kinston real estate investor needs to know. Professional investors like those at NC TLC Estate can help you understand the results when you compare investment properties. The professional investors at NC TLC Estate can guide you to the best investment property available in Raleigh, Durham, Clayton, Smithfield, Rocky Mount, Selma, Wilson, Goldsboro, Kinston.
The professional investors at NC TLC Estate know all the important calculations every Raleigh, Durham, Clayton, Smithfield, Rocky Mount, Selma, Wilson, Goldsboro, Kinston real estate investor needs. And the professional investors at NC TLC Estate know the local market because we are your neighbors here in Raleigh, Durham, Clayton, Smithfield, Rocky Mount, Selma, Wilson, Goldsboro, Kinston. When you work with professional investors at NC TLC Estate, you’re working with a local full-service in-house team of industry specialists who work with an investors mindset, saving you time, money, and headaches. The professional investors at NC TLC Estate bring it all to the table, including every pro needed to make real estate investing easy and efficient. At NC TLC Estate, we handle it all, from locating investments and running the numbers showing you the ropes of the real estate investment business all the way to the closing table. You can also rely on our highly regarded property management team at NC TLC Estate to take on as many of the duties of a landlord as you like, from tenant screening to on-site management of large complexes. Call NC TLC Estate at 919-920-7081.