Do the Maths! Learn how to work out the profitability of your properties before you even view

                                                                                         

One of the key aspects to making any buy-to-let property investment work is knowing whether your property can generate you a positive cash flow every month. If it cannot produce over £500+, put it aside and move on.

Sounds straight forward and it is. All you need is the skills and tools to help you access which are the best deals, and we can show you just that.

By learning how to do cash flow calculations, you can evaluate the profitability of your rental properties before you view – saving you time, energy and money in the long run.

Simple.

To help you on your way, here is a broken down example of a fourplex* when bought under these particulars:

*A Fourplex is when four units (properties) are bought with the goal for them all to be rented full-time.

• Purchase price of the fourplex is £183, 792
• You chose a 30 year loan at 6.5% with an interest payment of £929.14 per month
• Taxes and insurance are £2035.85, for a total payment of £1098.72 per month.

Now consider for a moment this scenario: You’ve done the research; can see that there will always be a demand for these properties – what do you do next? Double check.

Introduce the possibility of your rental properties being empty for 6% of the time, with an additional non-payment risk. This will give you a more accurate picture of the real cash flow of these properties, and will make the following calculations realistic. But before you do that, there is one last thing to add: rent.

To make the calculations easier for you to understand, we will make all four properties identical with a rental potential of £508.96 per month:

• Gross rental income is £508.96×4×12 months, or £24,430.08 per year.
• Payments are £1098.72×12 = £12,384.64 per year.
• Previous owner’s repair expenses averaged at £961.37 per year.
• Vacancy and credit loss is estimated at 6% or £1465.80 per year
• Owner spends £226.20 each year in advertising or miscellaneous costs – plus they are managing the property themselves (no property manager).

These are the basic operational items that are essential for making the next equation work:

• Rent income – Vacancy Loss – Payments –Expenses = Cash Flow
• £24,430.08 - £1465.80 - £12,386.64 - £1,187.57/ 12 = £782.50 per month in POSITIVE cash flow.

In this scenario you have earned £782.50 in positive cash flow for one singular month. This is great considering you bought your properties as part of a fourplex package (all four properties under one price).

The most fascinating aspect about this equation is that you can apply it to any of your properties: from 1 to 4 and above, and work out the cash flow all in the comfort of your own home. No loss of time with viewing. You will know before you commit whether your rental properties are worth pursuing.

So do the research. Get the above figures, and start investing.

With this equation you can work out the profitability of your properties before you even look. Fantastic!

About the author:
Frank Woodford is an experienced copywriter working in the Nottingham area for a property investment company providing property investment workshop

Article Source: http://www.Free-Articles-Zone.com