Understanding cash flow types that result out of buy to let property

Posted under General by Alan

The biggest benefit of any buy to let property is the resultant cash flow. There are four broad types:

Type 1 of cash flow: Monthly cash flow is cash, which flows into the business, less the cash, which happens to flow out, over a given period of time. This is not really the same as profit. For instance, depreciation is not mentioned on a cash flow statement, whereas it does appear on a profit and loss statement. Generally, the project will be profitable if the cash flow is positive.

Second type of cash flow: ‘Up front cash flow’ usually comes from upfront payments that your tenants provide for their tenancy.

Type three of cash flow: The third type of cash flow is termed ‘re-financing cash flow’ that comes when you take your property, which has appreciated in value and tap into the equity by refinancing it. This particular type of cash flow is tax free since it is deemed a ‘loan’ and not actual profit made; better still, it can be spent and can be invested. Fourth type three of cash flow: ‘Back-end cash flow’ appears when you happen to sell a property.