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.
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