Two Types of Financial Statements :
Two Types of Financial Statements Both individuals and pieces of real estate have financial statements
A house’s balance sheet has to do with equity, while a person’s has to do with net worth
A house’s income statement records cash flow, a person’s records money from their job.
How Equity and Cash Flow Impact Personal Finance :
How Equity and Cash Flow Impact Personal Finance The second you buy a house and rehab it, it’s financial statements attach themselves to your own
For example, if the house you buy has $30,000 in equity, your net worth increases by $30,000
If you property cash flows $300 a month, $300 are added to your personal income
Why You Must Buy Real Estate “Correctly” :
Why You Must Buy Real Estate “Correctly” A property can positively affect your personal income and balance sheet, but it can also have a negative impact
If you buy a house that’s upside down or has negative cash flow, your net worth and income will decrease
Must buy real estate correctly to see positive affects on ROI
ROI Based on Equity and Cash Flow :
ROI Based on Equity and Cash Flow If you have $10,000 invested in a property and the equity in the house is $30,000, you have a 300% ROI
But if this house also cash flows $200 a month, that’s $2400 added to your income (24% ROI)
These different ways to calculate ROI create conflicting calculations of return on the same house
Add Them Together! :
Add Them Together! If you have your ROI based on equity and your ROI based on cash flow add them together!
This is your total ROI (not counting ROI on other ways real estate makes you money like tax advantage)
Remember when you buy a piece of real estate, it’s financial statements attach to your own
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