In our opinion discounted properties with positive cash flow represent the best property investment opportunities with the least risk and highest return potential all else being equal.
Positive cash-flow properties are the ones that have already a tenant paying rent when they are acquired, and the rental income received is more than enough to cover operating expenses, including property taxes and mortgage payments. So the investor has a positive cash flow while building up equity.
Here are what we consider as best features of these investments vis a vis alternative property investments.
• They are considerably less risky than investments in properties that are vacant and produce no income upon acquisition; in such a case the investor takes significant risk as he/she does not know when a tenant will be found and when found what the exact income of the property will be
• They are also less risky and more profitable than properties that produce rental income which does not fully cover the operating expenses plus mortgage payments and the investor will need constantly pump additional money in the property in order to cover the cash flow deficit
• Properties that are truly discounted below their market value at the time of purchase offer instant equity and capital gain upon resale and represent unquestionably better investments than acquiring undiscounted properties of similar quality at the same location and market
• Properties that have positive cash flow allow the investor to build up equity by repaying the loan amount, while earning income at the same time.
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Internal Rate of Return(IRR)
The 3 Formulas for Modified IRR (MIRR)/Financial Management Rate of Return (FMRR)
Potential Gross Income Multiplier (PGIM)
Potential Gross Income
Effective Gross Income Multiplier
Effective Gross Income
Net Income Multiplier
Net Operating Income
Overall Capitalization Rate/Income Return
Capitalization Factor
Band-of-Investment Formula for Estimating a Market/Required Capitalization Rate
Theoretical-Approach Formula for Estimating a Market/Required Capitalization Rate
Appreciation Return
Total Return
Return on Total Capital (ROR)
Return on Equity (ROE)/Cash-on-Cash Return/Equity Dividend Rate
Before Tax Equity Cash Flow (BTECF)
Equity Investment
Loan Amount
Debt Service
Mortgage Constant
Payback Period
Breakeven Occupancy
After Tax Cash Flow (ATCF)
Taxable Income
One-Period IRR
Income Tax Payment in Association with Income Producing Property
Capital Gains
Formula for Cash Flow for Last Period of Analysis
Future Resale Price
Annual Rental Income of Occupied Multi-Tenant Property
Multi-Period Lease Rate Growth Formula with Intertemporally Variable CPI Forecast
Multi-period Lease Rate Growth Formula with Constant CPI Forecast
Present Value (PV)
Net Present Value (NPV)
Profitability Index
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Return from Positive Cash Flow Properties to Property Investment Stratgegy
