The Importance of Cash Flow When Investing in a Commercial Property
2 min read
When looking to acquire a commercial property, there are many things you must consider—the property's cash flow being one of them. At a high level, cash flow can be defined as the amount of profit a property generates. Evaluating whether a potential investment generates a steady cash flow will determine whether it is beneficial to your portfolio.
How to Calculate Cash Flow
Calculating cash flow is simpler than one may think. All you have to do is add all sources of income together and subtract them from all incurred expenses. The most common components to account for when calculating cash flow are; revenue, operating costs, and capital expenditures. For a property that is mortgaged, the remaining amount owed will be further subtracted from the property's cash flow.
Why is Cash Flow Important?
The cash flow of a commercial property plays a key role, as it can be a determining factor when searching for a suitable investment opportunity. Positive cash flow indicates that the property can generate income, adding value to your portfolio. A property with a negative cash flow may mean its expenses outweigh its revenue.
Investing in commercial real estate takes time and consideration. Understanding the property's value can differentiate between good and bad investments.
References
Dudek, B. (2022, April 25). Evaluating a commercial property's cash flow – and why it matters. Commercial Real Estate Investment Platform | Jamestown Invest. Retrieved October 28, 2022, from https://www.jamestowninvest.com/real-estate-360/evaluating-a-commercial-propertys-cash-flow-and-why-it-matters/
Loth, R. (2022, March 10). Analyze cash flow the easy way. Investopedia. Retrieved October 28, 2022, from https://www.investopedia.com/articles/stocks/07/easycashflow.asp
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