Free cash-flow: understand this indicator to better manage your profitability thanks to your concierge service in Nice
Real estate investors often use indicators to help them in their choice of rental purchase. The variables used depend on your situation and your goals. However, to ensure the success of a rental investment, certain indicators will give you access to key information to make the best decision. At YourHostHelper, we are interested in the notions of profitability and more specifically cash flow. But did you know that there is another concept, unknown to most investors? Free cash flow is, however, an important indicator of the success of a project. Your concierge will explain what free cash flow is and how to use it to choose your investment.
What is Free Cash Flow (FCF)
Free Cash-flow is an important financial concept to direct your investment. But what really sets it apart from other indicators?
Definition of FCF
Free cash-flow (or FCF) can be translated into French as "free cash flow". It generally designates the amount of turnover generated once the investments necessary for its development have been paid. When all the expenses useful for the smooth running of the company are deducted, the remaining sum is called Free cash-flow. This more or less corresponds to the sum of the profits received for real estate investors. In finance, FCF is used to determine the value of a company.
Cash flow and self-financing capacity
Self-financing capacity is one of the primary goals of rental investors. This is the amount generated by your project (i.e. rental income in the case of an Airbnb rental) from which we subtract the costs inseparable from the same project. This is what your banker will study if you want to get a new bank loan. This allows you to know at a glance if you are able to make your rental live by reimbursing all the charges thanks to the returns generated.
How to calculate free cash flow
Unlike the cash flow which highlights the ability of your project to generate money, the FCF is more precise by removing the investments required for the proper functioning of your rental (such as rental management fees for example). Free cash flow determines the capital that can be reinvested or, in the case of a company, which is used to remunerate investors and creditors.
To understand the calculation of free cash flow, it is necessary to look at the three types of existing cash flow:
- Operating cash flow (OCF). It concerns the income generated directly by the activity of the company and only takes into account the income and expenses generated by its operation.
- Investment cash flow (ICF). It includes cash flows related to the acquisition or sale of shares in the company.
- Funding cash flow. It combines all the financing linked to the creation of the company (grants, bank loans, contribution, etc.) and their reimbursement.
The calculation of free cash flow can be calculated in two different ways. One of them takes into account the different cash flows generated by the company, the other is based on the gross operating surplus as well as on the variations in working capital requirements. For simplicity, we will focus on the first method of calculation.
The free cash flow is therefore the result of the following equation:
FCF = Operating Cash Flow (OCF) + Investing Cash Flow (ICF)
There is also a summary table to help you better understand the different flows generated by your activity. Use the example of the cash flow statement to measure your cash flows.
FCF and rental investment, what your concierge in Nice thinks
The concept of cash flow and its differences with other indicators are difficult to grasp and sometimes tricky to apply. However, it is essential to take an interest in it to build a solid foundation for your project, whatever it may be. In the case of a rental investment, several notions can be simplified. You must appropriate this notion to adapt it to your situation.
Your Nice concierge uses cash flow, performance and profitability indicators to offer you the best possible support. Specialists in seasonal rentals, we carefully study the evolution of the rental market in your sector to adapt our management in order to optimize your cash flow. Thanks to the experience of our agents, we guarantee our owners an average increase of 25% in their rental yield.
Take advantage of the attractiveness of Nice to invest in seasonal rentals. Your Nice Concierge takes care of all of your rental management so that you have nothing more to do. By using Airbnb rental professionals, you concentrate your rental expenses in a single service for optimal profitability.
To set up a rental investment project, you must, as an owner, know the main indicators of the health of your investment. Useful for decision-making, these notions may seem barbaric at first, but constitute a solid base for evaluating the progress of your project. Free cash flow is an important point to master. It highlights the cash flow generated by your rental and indicates the merits of your rental investment. Taken into account by bankers, a positive cash flow will help you set up new projects by taking out loans. Your concierge in Nice supports you in your projects by studying for you the market indicators conducive to investment. We help you take charge of your rental management and work to increase your cash flow without effort on your part.
