True Cash Flow™

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 cash flow + Cash Flow from Depreciation™, once you own a property more than 27.5 years and you can no longer depreciate the property a couple things happen.

First, Cash Flow from Depreciation™ goes to zero. You don't have any depreciation left to take.

Second, True Cash Flow™ is now the same as regular cash flow.

So, True Cash Flow™ is helpful thinking tool only during the depreciation period and is not helpful once you get past the period you get to take depreciation on your rentals.

True Cash Flow™ When Contemplating: Should I Refinance My Rental Property?

When contemplating whether or not you should refinance your rental property, many real estate investors will consider whether any increase in monthly payment from a refinance will be covered by the True Cash Flow™ of any properties they may purchase with cash out refinance proceeds.

If the properties they're going to buy cannot support the extra monthly payment from the refinance then don't refi. Of course, there are more subtle and nuanced considerations that the Real Estate Financial Planner™ software does a great job modeling.

True Cash Flow™ Charts

You can view a variety of True Cash Flow™ related  Charts in the Real Estate Financial Planner™ software.

Enter your own investing plan into the Real Estate Financial Planner™ software to see these  Charts and hundreds of others for your own situation.

You can view True Cash Flow™ for any  Scenario. Or, compare True Cash Flow™ to two or more  Scenarios to see which has better True Cash Flow™.

You can also view True Cash Flow™ for any individual  Property or for two or more  Properties in a  Scenario to get a feel for which  Properties are providing the best True Cash Flow™.

For example, here are a few from Andrea's situation.

Ep 4 - Andrea - Total True Cash Flow
Ep 4 – Andrea – Total True Cash Flow

Or, the same  Chart except this one is adjusted for inflation.

Ep 4 - Andrea - Total True Cash Flow - Inflation Adjusted
Ep 4 – Andrea – Total True Cash Flow – Inflation Adjusted

Or this one when  Andrea compares her baseline from episode 1 to paying off mortgages early in episode 5.

Ep 5 - Andrea - Total True Cash Flow
Ep 5 – Andrea – Total True Cash Flow

And here's the inflation adjusted version of that same  Chart.

Ep 5 - Andrea - Total True Cash Flow - Inflation Adjusted
Ep 5 – Andrea – Total True Cash Flow – Inflation Adjusted

And, here's an advanced comparison where we run monte carlo analysis and compare them.

Ep 5 - Andrea - Total True Cash Flow - Monte Carlo
Ep 5 – Andrea – Total True Cash Flow – Monte Carlo

And, here's what the probability curves look like for the monte carlo analysis for 20 years (month 240).

Ep 5 - Andrea - Total True Cash Flow - Monte Carlo - Month 240
Ep 5 – Andrea – Total True Cash Flow – Monte Carlo – Month 240

Want to see how much True Cash Flow™ that  Andrea has accumulated total? That's the  Chart below.

Ep 5 - Andrea - Total Cumulative True Cash Flow
Ep 5 – Andrea – Total Cumulative True Cash Flow

And, of course, the inflation adjusted version.

Ep 5 - Andrea - Total Cumulative True Cash Flow - Inflation Adjusted
Ep 5 – Andrea – Total Cumulative True Cash Flow – Inflation Adjusted

In episode 4 with  Andrea she contemplates hiring a professional property manager. You can see a comparison of how much she is paying to a professional property manager versus how much she is collecting in True Cash Flow™ in the  Chart below.

Ep 4 - Andrea - True Cash Flow vs Property Management Fees
Ep 4 – Andrea – True Cash Flow vs Property Management Fees

Total True Cash Flow™ ÷ Monthly Safe Withdrawal Rate

True Cash Flow™ on rental properties is similar in some ways to what we can “safely” spend if we had money invested in stocks, bonds, etc and used a safe withdrawal rate. So, as a thought exercise couldn't we try to see what the value of the True Cash Flow™ is in terms of a lump sum invested in stocks, bonds, etc?

If we took the True Cash Flow™ and divided by the monthly safe withdrawal rate, we could see how much money we would have needed to invest in stocks, bonds, etc to generate the same cash flow. That's the  Chart below.

By the way, for monthly safe withdrawal rate I mean safe withdrawal rate divided by 12 months.

Ep 4 - Andrea - Total True Cash Flow Divided By Monthly Safe Withdrawal Rate
Ep 4 – Andrea – Total True Cash Flow Divided By Monthly Safe Withdrawal Rate

Of course, we could adjust this same chart for inflation.

Ep 4 - Andrea - Total True Cash Flow Divided By Monthly Safe Withdrawal Rate - Inflation Adjusted
Ep 4 – Andrea – Total True Cash Flow Divided By Monthly Safe Withdrawal Rate – Inflation Adjusted

And here's the advanced monte carlo version with a comparison of the  Expected Value turned on.

Ep 5 - Andrea - Total True Cash Flow Divided By Monthly Safe Withdrawal Rate - Monte Carlo
Ep 5 – Andrea – Total True Cash Flow Divided By Monthly Safe Withdrawal Rate – Monte Carlo

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