An important math formula to learn as a landlord is your cash flow. I first learned about this concept after reading Rich Dad Poor Dad: What the Rich Teach Their Kids About Money That the Poor and Middle Class Do Not! If you have not read this book yet I would highly recommend it. Robert Kiyosaki explains the core concepts of cash flow in easy to follow illustrations. Understanding positive and negative cash flow is such a basic concept yet often misunderstood by landlords who own rentals with negative cash flow. The math has to make sense which is why my wife says rental income is really not so passive income.
Positive Cash Flow
- Positive cash flow is when your operational home expenses, including mortgage payment, are less than your rental income.
Negative Cash Flow
- Negative cash flow is when your operational home expenses exceed your rental income.
Tracking Monthly Expenses
To become exceptional at understanding cash flow you have to be organized at tracking home expenses. Being organized in tracking your monthly cash flow means you need more than just your bank statements to understand where your money is coming from and going towards. To help track my cash flow, I created a Monthly Mortgage Cash flow sheet that is available for my Rent the Mortgage readers to download for free.
RTM Monthly Mortgage Cash Flow sheet
Track your monthly mortgage expenses and rental income to understand your cash flow.
What are the different types of home expenses?
Operational home expenses are defined as recurring expenses that are paid on a regular cadence (i.e. weekly, monthly, annual). Basic utility expenses include electricity, gas, water are all operational expenses. Other common operational home expenses include house insurance, garbage, Home Owners Association (HOA) fees if you live in a condo/townhome or fancy neighborhood. Extras is a category I reserve for “nice-to-haves” but not necessary such as cable tv or security subscription such as Google Nest Aware or Ring Protect.
Maintenance expenses on a home are not to be confused with operational home expenses. For example, fixing a broken towel bar, replacing a broken window or painting a room are not expenses that will regularly occur but are necessary in maintaining a home.
Operational Expense
- electricity
- gas
- water
- garbage
- home insurance
- HOA fee
Extras
- internet
- cable tv
- security subscription
Maintenance
- painting
- repairs (e.g. broken window, replacing carpet)
- improvements (e.g. installing tankless water heater)
- renovations (e.g. adding backyard deck)
- plumbing
- electrical (wiring, switches, plugs)
What kind of household expenses do you have? I am here to help you with Monthly Mortgage Cash flow sheet. Let me know in the comments.
