INVESTOR’S GUIDE TO CASH FLOW FORMULA FOR A RESIDENTIAL RENTAL PROPERTY IN ONTARIO, CANADA
Why You Should Know the Cash Flow Formula?
This guide includes:
- 3-page PDF document
- 8-step check list for calculating cash flow on a residential rental property
- Cash flow calculation for a Duplex in Ontario, Canada
- Download is immediate after checkout
- Great tool for those who are looking for passive income through rentals!
Many people who are just starting to look into buying a rental property want to get passive income.
They look for an asset aka something that puts money in their pocket. By definition, asset will produce passive income.
For example, if an asset pays you $100 a month, it pays for your Internet costs. If another asset pays you $200 a month, it pays for your coffee. This way, with enough assets, you can cover all your expenses and will not need your job any more. Your assets will be working for you instead.
Unfortunately, even though the concept seems to make sense, I see a lot of people who would still buy a real estate property that is a liability, not an asset.
Liability takes money out of your pocket. Instead of getting an income of $100 a month, these people are giving away $100, $200, $300 and sometimes more every month.
It would be okay, if it was an honest mistake! But unfortunately, these people knowingly purchase a liability. They willingly disregard the cash flow formula.
The reason for that is that people don’t think that $200 is a big deal. Common comment I hear is “Why would I want to bother and clean toilets for 200 bucks?” and on the flip side, “I can easily pay $200, it doesn’t matter. This is a long-term investment for me and I am after appreciation.”
Negative Cash Flow Becomes a Nightmare
If you own a property that is a liability and eats $200 a month. This expense adds up to $2,400 a year of your after tax money. With 30% tax rate, that is $3,400 before tax. If your income if 90-100K a year, then it takes you two weeks of working to make this money!
$200 liability = Two weeks of Your Time on your Job, Working, and Putting in Energy and Effort
Suppose, you are after long-term wealth and buy three properties, each property eats $200, so $600 in total. That’s $7,200 after tax = 10K before tax = 10% of a 100K salary!
Add the tenant management head aches on top, or a temporary time in life when you don’t have a job or need some extra cash to pay for – kids, parents, education, health, or something that just popped up, - and owning the negative cash flow property becomes a nightmare that keeps you up at night.
Negative cash flow is not scalable and can’t be maintained in the long run
In most cases, the owner of such properties loses patience, hates being a landlord, and eventually sells the property in a rush and at a bad time.
Do yourself a favour - Avoid negative cash flow!Treat yourself to a good deal – buy an asset NOT a liability!