To get positive cash flow properties you need to do two things have a capitalization rate that is greater then the annual loan and have a very low loan to value ratio. At the basic of cash flow these two factors are what counts. The capitalization rate is the yearly operating income or rent divided by the purchase price of the property. You can also think of the capitalization rate as the cash return you would receive if the property did not have a mortgage.

The loan payment ratio or constant includes your monthly loan payments as well as the interest you need to pay divided by your balance. No matter the numbers involved the shorter the time period you have to pay off the loan the higher this number will be. The loan to value ratio is your total mortgage divided by the cash flow property value.

You can find representational numbers from the Institute of Real estate Management or the National Apartment Association to help you determine these numbers. Additionally you can get these numbers from your tax return. You will need Schedule E of your tax return to determine your mortgage payments. Then for the same year you will need form 4562 to see the money used for improvements on the property that does not include the actual purchase of the property.

So you actual cash flow will be calculated using the following formula. True cash flow = Rent (schedule E) ? property expenses (Schedule E) ? mortgage principal and interest payments for the year ? the cost of all improvements and replacements (form 4562). By knowing your actually cash flow you can investigate ways to increase this or if you have a positive cash flow use your strategy and apply it to other cash flow properties.