Maintaining positive cash flow is key to successful buy-to-let transaction

Posted under Advice by Michael

The biggest advantage of buy-to-let property transaction is cash flow boost it provides. It can greatly boost the monthly cash flow. This is the cash, which flows into the business, less the cash flowing out, over a given period (a month, in this case) Remember, this is not the same as profit! Depreciation is not necessarily taken into account as part of a cash flow statement whereas it does appear on a profit and loss statement. Broadly speaking, if the cash flow is positive, the transaction will be profitable. This simple calculation will help you work out the financial implications of your buy-to-let investment. Up front cash flow is another important parameter. It comes from upfront payments that your tenants provide you for their tenancy.

As long as you can maintain positive cash flow, rental homes are a great long-term means of making money in real estate. It is an inflation adjusted retirement plan because rent and so your income goes up with inflation.

However, many people tend to confuse making money from rental properties with making money by speculating on price appreciation. You can certainly manage to do both with rental homes, but the desire to gamble on prices leads many to buy rental homes, which may ultimately result in more money going out (outflow) than coming in (inflow), negatively impacting the overall cash flow.

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