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Real Estate Investment Software Blog

The cash flow of rental income property is what any investor engaged in real estate investing wants to determine. How much cash (both before taxes and after taxes) will remain after the property’s operating expenses and mortgage payment is deducted from the rental and other income generated by the property? In other words, will the property ultimately produce enough cash during any given year for me to pocket some of it (and perhaps invest it elsewhere) or have to feed into it (out of my personal funds) to keep the property running?

Two calculations often made by appraisers using the income approach to valuate rental property involve the profit margin and break-even ratio. In this article I will explain and show the formulas for both.

The success or failure of a real estate investment ultimately depends on the property’s ability to produce revenue. Therefore real estate investors are always interested in making cash flow projections on any investment property they are evaluating as a potential investment.

There is no such thing as a “no-brainer” in real estate investing; it’s all about the numbers. And when you understand what real estate investing is and are serious enough to do it by the numbers (not by the seat of your pants) then investing in real estate can pay you big dividends; otherwise you lose money or would have to consider yourself lucky.

Net present value (NPV) is a measurement of the investment performance of a property that converts investment cash flows to a single amount to facilitate a real estate investor’s decision making for property analysis and comparison purposes. And this true whether the investor is concerned with maximizing wealth at a specific point in time or minimizing the cost of obtaining a particular benefit.

Financial management rate of return (or FMMR) is a return conceived (at least I think it was) by the Commercial Investment Real Estate Institute (CIREI) and is taught to those who seek the CCIM (Certified Commercial Investment Member) designation.