The Business of Real Estate Investing: Knowing the Numbers

The appropriate management of cash flow is probably the number one cause of stress for new business owners. So how can this be avoided? We must maintain complete control with our evaluation.

It may go without saying, but strong cash flow is extremely important when working with banks and to gain access to quality, long-term mortgages for our properties. Cash is king.  Yet while this is true, most business owners don’t truly know how much revenue it takes to run their business successfully or even what their true profit is for the year.

The dream is to have cash flow while working with little stress. Obviously the key is to have money coming in at an equal, or greater amount, than what needs to go out. The issue lies in calculating how much money we should be bringing in and when.

To some, a “property analyzer” may be the answer; one who works in establishing if a property generates cash flow. The issue here sometimes is that while they concentrate on the property, operating expenses (such as stationary, phone, vehicle, and account expenses) are forgotten. Most of these factors do require a cash outlay on a regular basis.

To run any successful business we need to know the numbers and have the tools to monitor our progress as time goes by. The act of creating a budget can aid hugely in keeping you on track. A simple spreadsheet can create a budget that reveals what revenue is coming in (rents), list all of our expenses for each property, and then itemize our overhead costs. Even in the act of creating this sheet you learn valuable information; you may discover costs you weren’t aware of. Above all, you will have a plan that will tell you if you are headed for trouble or not.

 

 

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