Estimating cashflow entails plotting out the major expected cash outflows (taxes, principal, interest, expenses, vacancies, fees, repairs) and comparing it with the income that the property produces. You can do this either via a spreadsheet or using a real estate evaluation software package.
Real Estate Valuation and Analysis for Investors
From Christopher Smith, for About.com
The only reason you care about cap rate is that you’re really trying for an easy proxy for what kind of cashflow the investment is going to generate. In investing cash is king – ignore this calculation at your peril.
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- Real Estate Investment Evaluation is Both Quantitative and Qualitative
- Quantitative - Running the Numbers Using Cap Rate
- Cash Flow as a Quantitative Evaluation Tool
- Rate of Return as a Quantitative Real Estate Investment Analysis Tool
- Qualitative - Can You Get the Project Done?
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