Cash Flow with Equity - A Case Study

Cash Flow with Equity – A Case Study

Here is an awesome example of Cash Flow with Equity at work!

Let’s use one of my properties I bought November 2013  in Florida just outside all the awesome theme parks and newly constructed (well in the works) Medical City!

Cash Flow with Equity - A Case Study



Here are the details of the purchase:

  1. Purchase price of a single family home is $114,000.
  2. I put 20% down, which is $22,800, financing the rest at $91,200.
  3. A standard 30 year loan at 4.9% (which is awesome for an investment property). The principal and interest payment will be $487/month.
  4. Taxes and insurance will be $2,112 per year which is a $176 monthly expense. This area where we purchased has been fully vetted and researched for rental demand, suitable property management, and local economic trends.

This area is in the process of building a huge state-of-the-art medical center or what they are calling a “medical city” as well as new improvements to the rail system.

To stay on the conservative side we will factor in 6% for vacancy and non-payment. This property will rent for $1,050/month.

The numbers:

  1. Total/gross income/month $1,050 x 12 months or $12,600 per year.
  2. My payments/month $663 x 12 months is $7,956 per year.
  3. Non-payment and potential vacancy is estimated 6%/rent or $756 per year.
  4. Another 10% on profit goes to property management team or $465 per year.

These are the basic dimensions of the cash flow. Now let’s look at the profits.

Rent income – Payments – Prty Mgmt – Vacancy = Cash Flow

$12,600 – $7,956 -$465 – $756 = $3,423 per year or $285.25/month in positive cash flow above expenses.

When we look at my return as cash on cash invested, I would divide my down payment which is $22,800 into the cash I make each year, $3,423. This would show a 15% growth each year on my money invested!

This is not taking into consideration depreciation, tax breaks, equity captured at purchase, and potential equity growth which has been roughly 13% the last 12 months.

Speaking of equity growth, the Florida real estate market is at a low point with roughly three years of “inventory” (number of discounted homes). When this inventory starts to dwindle then new home construction ramps up and that means our property climbs the ranks in market value as we have seen this last year!!

When all these factors are included then the 15% we calculated will jump considerably thus increasing the cash on cash growth and further securing my income into retirement and beyond.

We are required to insure this property for $160,000. This represents how much it would cost to rebuild the structure. This is important because when the inventory is gone and new construction begins they will have to build the new homes for around $160,000 or more. This will immediately bring our property value up to match seeing that materials and labor costs are at least that much for new construction!!!

You may have noticed our term/definition “cash flow real estate” involves things that are very specific yet easy to incorporate when looking at potential investment properties. A quick note of caution here! Often times when companies tout their return on investment or ROI they leave out principal and interest monthly expenses.

When speaking with or investigating companies or programs you always need to determine what is included in their definition of “cashflow”.

Leave a comment below!

Cash Flow with Equity By Joe Nielsen

Leave A Comment