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Cash Flow:

It is often said that in a business 'cash is king'. This is no less true of property investment, whether you are doing this as a one-off hobby investment in your first property or you have a whole portfolio of investment properties.

It is quite possible that fundamentally your investment project is very sound, you have bought well and got good value for your property investment, but the whole project falls down on cash flow: either you spend far too much money on renovations and fitting out, or your rental income comes in too little and too late.

Its absolutely vital that you plan, closely monitor and control your finances if your project is going to be a success. The best way to do this is using the most useful tool a property investor can have: a cash flow forecast using a simple computer spread sheet. You need two in fact: (1) a project forecast overview (2) a detailed working cash-flow forecast. What follows are two example investment projects (1) a two-bed terraced property and (2) an 5-room student house

(1) The Project Forecast (two-bed Terraced House)

The Asset Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Totals
Property Value assuming 5% growth 245,000 (purchase price) 257250 270115.5 283618.12 297,799.02 312688.97 328323.41
Yield             19%
Return on Capital             131%
Total Return             129,000
 
Money Out Total monies for the project including purchase, start-up, running costs and mortgage payments
Deposit 35,000           35,000
Loan 210,000           210,000
Renovation 21,000           21,000
Legal & Prof 1,500           1,500
Mortgage 450 900 900 900 900 900 4950
Annual Running Costs 1,000 1,000 1,000 1,000 1,000 1,000 6,000
Total Outflow 268,500 1,000 1,000 1,000 1,000 1,000 278,450
 
Money In Rental Income over 6 years allowing for increases and some void months.
Rental Income 3,000 8,000 8,500 8,500 9,000 9,000 46,000

This shows a capital appreciation over the 6 years of 83,323 added to the rental income of 46,000 gives a total return of 129,000 on the whole project.

Of course these are mainly "paper profits" and what matters is

(2) The Working Cash Flow Forecast: (two-bed Terraced House)

Item Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Totals
               
               
               
               
               
               
               
               

Example 2 -

(1) The Project Forecast (Five-room Student House)

Item Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Totals
Property Value assuming 5% growth 245,000 257250 270115.5 283618.12 297,799.02 312688.97 328323.41
Yield             19%
Return on Capital             131%
Total Return             129,000
 
Money Out Total monies into the project including purchase, start-up, running costs and mortgage payments
Deposit 35,000           35,000
Loan 210,000           210,000
Renovation 21,000           21,000
Legal & Prof 1,500           1,500
Mortgage 450 900 900 900 900 900 4950
Annual Running Costs 1,000 1,000 1,000 1,000 1,000 1,000 6,000
Total Outflow 268,500 1,000 1,000 1,000 1,000 1,000 278,450
 
Money In Rental Income over 6 years allowing for increases and some void months.
Rental Income 3,000 8,000 8,500 8,500 9,000 9,000 46,000

This shows a capital appreciation over the 6 years of 83,323 added to the rental income of 46,000 gives a total return of 129,000 on the whole project.

Of course these are mainly "paper profits" and what matters is

(2) The Working Cash Flow Forecast (Five-room Student House)

Item Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Totals
               
               
               
               
               
               
               
               

Information here is general only & believed to be correct, though we cannot guarantee it, nor do we accept any liability if you act or fail to act on this information. Always seek professional advice before making decisions. Investments can go down in value as well as up over  time.