As I write this article, it is officially the first day of fall. I love fall on the prairies. The mornings are cooler, the leaves are changing and people are cleaning up their yards preparing for the inevitable first snow fall.

Last time we were together, we talked about the seven profit centres of real estate and the EL CP TAR model.

E-Equity

L-Leverage

C-Cash Flow

P-Principle Pay Down

T-Taxes

A-Appreciation

R-Reinvestment

In the last article we have covered Equity and Leverage in our ELCPTAR profit centre model.

Equity is the difference in what a property is worth, and what is owed against it. Leverage is using a little bit of your own money to purchase and control a property, and having the remainder of the down payment from another source, such as a bank or private lender.

This month we will be covering CASHFLOW! Cashflow is a very important part of real estate investing. To keep it simple, cashflow is the amount of money that you have coming in from a property, minus the amount of money that you are paying for the property. For example, you have the rent coming in, and you have the mortgage payment, property tax, and maintenance going out.

It looks like this:

Rent = $1000

Mortgage payment $600

Property tax $200

Maintenance $100

cashflow per month = $100

One of the fundamentals of real estate investing is ensuring that you are cash flow positive.

There are some different schools of thought where it is ok to be cashflow negative, but only if you are in a rapidly appreciating market, think Toronto or Vancouver. I am of the opinion that you should never be in a cashflow negative situation, in that your property costs you money every month. At a minimum, you should at least be in a cashflow neutral position, meaning you are breaking even. Being in a negative cashflow situation is poor because you don’t know when things will change in the market, and you may find yourself in a spot where you have a cashflow negative property that is no longer appreciating.

Next time we will cover the subtle, but powerful concept of principal pay down.

Enjoy the colours of the season 🙂

Brad Chisholm is a Realtor® and real estate investor based in Saskatoon, Sk. You can find him at bradleychisholm.exprealty.com.