Cash flow is one of the most important metrics in real estate investing, as well as any other business endeavor. If your business entity does not produce positive cash flow, your options are limited at best, and at worst, you could be in serious financial trouble.
As real estate investors, we spent a lot of time trying to analyze and predict a property’s future cash flow. However, everybody does it differently. I’ve seen investors predict maintenance to be 2.5% of rent, and others predict 15%-20%. I’ve seen some predict a 2.5% vacancy factor. Not surprisingly, the real estate SELLERS (and newbies) are the ones predicting the aggressively (read: unrealistically) low expenses and high rents. Tweaking your assumptions by just a few percentage points can make a bad deal look good and vice versa.