Ignore The Noise - Here’s How to Actually Calculate Projected Cash Flow

In this Episode Emil, Tom & Michael cut through the noise and explain how to calculate cash flow properly.    --- Transcript   Emil: Hey everyone, welcome back for this week's episode of The Remote Real Estate Investor. My name is Emil Shour. And I'm joined by my co host,   Tom: Tom Schneider.   Michael: Michael Albaum.   Emil: And today we're going to be talking about how should you actually calculate cash flow. There's a lot of different formulas out there. And we want to clear the air and give you a we believe is the best way to calculate what your projected cash flow should be as you're analyzing a property. So let's get into this episode.   Theme Song   Emil: Alright, guys, so this was actually a topic that I thought would be interesting to cover, because I feel like there's a lot of misinformation out there. And I feel like it's really easy to read case studies and blogs and go on YouTube or on social media. And you'll see people talking about their cash flow. And the numbers seem outrageous, right? It's like a property renting for 1100 dollars. And they're talking about $400 of cash flow a month. And obviously, it seems like there's a lot of things missing from the way their, their expected cash flow should actually look like. And so I thought it'd be good for us to dive into this on this episode. Have you guys seen the same thing? Like a lot of people?   Michael: Yeah, I have a property that rents for 1100 cash flows 400 bucks a month, so this is gonna be interesting.   Emil: Oh, do you   Michael: No just kidding.   Emil: Do you guys see this a lot? Do you guys like get this kind of feeling like being prevalent out there that a lot of people maybe aren't calculating cash flow the right way?   Tom: Or they just inflate it a little bit to feel good about yourself.   Emil: Sound cool?   Michael: Yeah, he's a bit of an ego thing.   Tom: Yeah, the thing with returns and what I like about this episode is man assumptions are just so important. And two people can be looking at the same deal, analyzing it and come up with completely different returns based on the way that they're calculating these, you know, what's in the sausage factory of those calculations is just so critical.   Emil: Yep.   Michael: I agree. I think that's kind of where deals often get made or broken is in the assumptions. And if you make a bad assumption, you can very easily buy a bad deal. And you could just as easily lose out on a good deal. So getting good at making assumptions is huge. But I totally see this regularly, where people aren't including the things that I would include in their cash flow calculation to determine what it is, I think it's it's too often to light.   Emil: Yeah, I agree. I've actually seen examples of this of properties that I've analyzed, like someone posted on Twitter, a property they just purchased. And I remember that exact property, and I had underwrote it as well. And my cash on cash was like half of what, you know, they said their cash on cash was going to be so I've seen it on like, on property, like specific properties, I've underwritten, too. So hopefully, it's a good episode for people to just have like a little bit more of like realistic expectations of what their cash flow could look like after they really account for everything and peanut butter spread all the expenses that come up throughout the year, right, Tom?   Tom: Jiffy, that Oh, yeah.   Michael: Jiffy on the spot?   Emil: All right, let's start out by talking about like, what is the formula? What expenses should you be considering as you're calculating this number?   Michael: The PITI is an acronym for your principal, interest, taxes and insurance. So the principal and interest is just determined by whatever the mortgage looks like, whatever the interest rate, whatever the amortization period is, and then your property taxes, if you are escrowing, these, the lender will often pay them for you. And so you pay monthly into this account. And you do