Price Resiliency™ is the amount property values (price) can decline before you’re underwater, upside down or have negative equity on rental properties. Similar to Rent Resiliency™, we can measure Price Resiliency™ in terms of dollars or in terms of percent. In other words, we can ask: How many dollars can property values (price) decline before I’d have negative equity? Or, what percent can property values (price) decline before I’d have negative equity? When we talk about Price Resiliency™ in dollars, what we’re really talking about is Equity. That’s because Equity is the amount of dollars that property values can decline … Read more
Equity is the difference between what a property is worth and what is owed. If you take into account the cost to sell a property when calculating Equity, we refer to that as True Net Equity™. You can view charts of Equity for individual Properties in the Real Estate Financial Planner™ software or the total Equity for all Properties in the entire Scenario.
Rent Resiliency™ is the amount rent can decline before you have negative cash flow on rental properties. We can measure it in terms of dollars or in terms of percent. In other words, we can ask: How many dollars can rent decline before I’d have negative cash flow? Or, what percent can rent decline before I’d have negative cash flow? When we talk about Rent Resiliency™ in dollars, what we’re really talking about is Cash Flow. That’s because Cash Flow is the amount of dollars that rent can decline before you’d have negative cash flow. But, the idea of Rent … Read more
You’ve heard of cash flow on rental properties. Basically, it is defined by taking all the income from your rentals minus all your expenses. Cash Flow = Income – Expenses But, have you heard about True Cash Flow™? True Cash Flow™ is your traditional cash flow plus Cash Flow from Depreciation™. True Cash Flow™ = Cash Flow + Cash Flow from Depreciation™ If you’re familiar with the Return Quadrants™, True Cash Flow™ is represented by the returns from these two sections: Post Depreciation Period Depreciation for a residential rental property typically lasts 27.5 years. Since True Cash Flow™ is really … Read more
What is cash flow for rental properties? Why is it important? How is it calculated? And cash flow reports for your investments. That’s what we’ll cover here. First, what is cash flow for rental properties? Cash flow is the money generated from your rentals after you account for all the income from the property and subtract all the expenses for the property. Income from your property might include: Rent from properties Option fees on properties Additional mid-month payments Utility bill back Income from onsite amenities like laundry or internet Appliance rent IMPORTANT NOTE: We do not typically consider Cash Flow … Read more
Cash Flow from Depreciation™ is your gross depreciation for a property times your estimated tax rate. It gives you approximately how much money you expect to receive from a rental property in tax benefits. Because it is a variation of cash flow, we tend to think of it in terms of a monthly amount. Although, for the Return Quadrants™ we will present it as a yearly amount. For the Return Quadrants™, we show it in this section: Over Time Gross depreciation is established when you buy the property. For residential properties, it remains the same for 27.5 years. And, unless … Read more
The Scenario Chart for Months of Reserves shows us the total number of months we could go without running out of money based on the current Total Account Balances divided by the Total Operating Expenses plus the Total Mortgage Payments plus the Personal Expenses Excluding Real Estate from any Rules in the Scenario. Mathematically: Months of Reserves = Total Account Balances / (Operating Expenses + Mortgage Payments + Personal Expenses) Recommended Months of Reserves Historically, when we’ve taught real estate investor classes we’ve talked about the importance of having at least 6 months in cash reserves in your bank accounts … Read more
The Scenario Chart for Total Cash Flow with Depreciation shows us the cash flow for our rental Properties while taking depreciation into account. Depreciation is the loss in value of a Property over time which you can claim against your rental income each year. Additional Information About Scenario Charts If you’re interested in learning more about the Scenario Charts in the Real Estate Financial Planner™ check out these resources below.