You are currently viewing Positive Cash Flow: the Key Objective of Real Estate Investors explained by your Lacanau concierge

Positive Cash Flow: the Key Objective of Real Estate Investors explained by your Lacanau concierge

Positive Cash Flow, the indicator of a quality investment explained by your Lacanau concierge

When we think of investment, we imagine (for the most optimistic) a very rapid positive return and unlimited opportunities. But do you know Cash Flow? However, it is an integral part of the calculation of the profitability of your project. Well known to professionals, positive Cash Flow is one of the objectives to be achieved by anyone wishing to make their real estate projects flourish. This also applies to seasonal rentals. But can you really evaluate the Cash Flow of your investment? Is it possible to have an interesting return with a negative Cash Flow? Your Lacanau concierge explains everything to you.   

What is Cash Flow

Financial terms can appear very barbaric for budding investors. But far from scaring, this notion is vital for all those who wish to succeed in their investment, but what exactly is Cash Flow? 

Real Estate Cash Flow 

To understand it, you have to know what this term defines. Cash Flow is an essential indicator that determines the state of health of your investment project. As its name suggests, Cash Flow refers to the flow of money generated by your real estate investment. It allows you to easily assess the relationship between what your rental costs you (in the case of a rental investment) and what it brings you back. 

Calculate the cash flow of your investment

To assess your real estate cash flow, just apply a simple calculation as follows: 

  • Money in — Money out.

 In itself, nothing complicated. This calculation can serve as a monthly or annual balance sheet. For the calculation of a monthly gross cash flow, we will therefore take: 

  • Revenue = Monthly rent
  • Expenses = monthly repayment of the loan + Condominium charges/12 + electricity + heating + property tax/12, etc. 

The Cash Flow is subject to many variations (depending on the one-off expenses to be made for the smooth running of your rentals). This is why it may not reflect the overall return on your investment. For those who wish to push their analyzes further and calculate the net amount of your cash flow, all you have to do is add the amount of your taxes to your expenses. This would be equivalent to using this formula: 

  • Net annual CF = Revenue (Annual rent) — Expenses (Loan repayment + Condominium charges + monthly charge [electricity, heating, internet, etc.] + property tax + tax amount)

Positive Cash Flow: an obligation to succeed

A positive Cash Flow therefore seems essential to qualify a project as profitable. However, is our investment necessarily a failure when the owners end up with a negative result? 

What is Negative Cash Flow 

Just as it can be positive, Cash Flow can also appear neutral or even negative. Indeed, being the result of the calculation between income and expenditure, the Cash Flow fluctuates over the months. There are therefore three types of performance: 

  • Positive cash flow: your income is greater than your expenses and your project generates profits which are transformed into additional salaries.
  • Neutral cash flow: the balance between your income and your expenses balances out. You benefit from self-financing of your rental without recovering profits.
  • Negative Cash Flow: you must invest a personal contribution each month or on a regular basis for your project to succeed. Your rental is not self-financing. 

Should we prefer positive Cash Flow to negative 

A real estate investment can have many facets. This is what makes it one of the most attractive investments. As an investor, the choice of your rental purchase can be governed by different objectives. Indeed, you can hope to generate monthly income to access regular salary supplements. Or invest in a home aiming for an attractive capital gain on resale a few years later. 

The targeted cash flow will depend entirely on your end goal. Indeed, if you hope for a monthly return on your investment, a positive cash flow will be mandatory. However, if this is the final capital gain of your purchase, you can afford negative cash flow. On condition, however, of being able to offset your total expenses during the resale, and of being able to finance the lack of cash each month. 

A neutral cash flow will be sufficient for investors wishing to increase their real estate fleet without aiming for immediate profitability. In real estate, there is a strong chance of neutral or negative cash flow if the profitability of the investment is around 7%. However, some owners do not hesitate to bet on products with a 5% return in cities such as Paris, Lyon or Bordeaux, because the capital gains on these homes increase from year to year. 

How to increase your Cash Flow

The golden rule for increasing the cash flow of your investment is to optimize its management. Your Lacanau concierge advises you to aim for a positive cash flow for two reasons. The first is that a positive cash flow will always be more pleasant for your portfolio and will facilitate the management of your property. The second concerns the banks. Indeed, if you wish to renew the experience and make a second investment, your bank will analyze your expenses, your income, as well as your return on investment. In general, a negative cash flow will be perceived as poor management of your project, while a positive balance of profitability will reassure your bank advisers. 

Several tips can increase your profitability in the short term: 

  • Favor investments known for their high yields (we consider a yield to be high when it is around 10%). 
  • Opt for a tax regime adapted to your situation. 
  • Borrow over a long period to reduce your monthly payments.
  • Think about major expenses when buying your home (pay attention to condominium or heating charges, which can be considerable).

How your Lacanau concierge can impact your Cash Flow

Deciding to delegate the management of your rental investment can have a significant influence on your cash flow. Your concierge service in Lacanau supports you in your project and takes charge of the complete management of your accommodation thanks to its 15 premium services. In addition to the creation, reception and cleaning of your rental, our team provides you with its expertise in the field and ensures an increase in the profitability of your property by 25% on average. Enough to achieve positive cash flow in a few months. 

A good real estate investment is not only defined by a positive cash flow. Indeed, this indicator is only a goal when you want to get a quick return on investment. However, the positive cash flow, in addition to improving your chances of obtaining new credit from banks, will allow you to ensure pleasant additional income. There are several ways to increase the performance of your investment. Your Lacanau Concierge accompanies you thanks to the YourHostHelper expertise to increase your returns on investment and achieve a positive Cash Flow.