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10 Properties, £2,000 Net Cash Flow Or 15% ROI – What Is More Important?

May 7, 2014

Posted by Simon Misiewicz on 7th May 2014

Do you have your fingers on your financial pulse?

Are you putting a plaster on a sceptic wound?

The Diagnosis

I meet a lot of property investors and I ask, “What are your ultimate plans for your property investment strategy? Their reply is varied:

• 10 properties
• £2,000 net cash flow per month
• 15% ROI

I wonder what answer is right? I think none of them in isolation are right. We could be making the £2,000 per month that is desired but could make £3,000 if the ROI is changed from 6% to 12%. We are therefore effective and not efficient.

Equally we could be making 15% ROI but only making £100 per property. This means we would need 20 properties to make the £2,000 net cash flow. In this case we are efficient but not effective.

Worst of all is the “I want 10 properties”. Would you want 10 properties if each one were making a £500 loss each month? This would mean that you would need to invest £5,000 per month into your property portfolio.

The Treatment

As Stephen Covey suggests, “start with the end in mind”. Understand how much money you wish to make and determine what the ROI should be.

Forget about the number of properties at this stage.

Let us assume that Joe wants to make £2,000 net cash flow per month. This is an annual profit of £24,000. He decides that HMOs are not for him because of the additional work required and opts for single lets. He resigns himself to making 10% ROI.

In this example we can now see that the amount of money he needs to invest in property is £24,000 X 10 = £240,000. As 10% ROI of £240,000 is, yes you guess it £24,000.
This amount of money is going to be two things:

• Amount of deposit into a property and
• Cost of refurb

Now Joe’s focus is on earning the £240,000 through employment, business activities, selling property leads, flipping properties or some other activity.

Once he has the £240,000 and ensures that he keeps track of the financial performance to easily generate 10% ROI, then he will earn £2,000 per month net income.

Applying the treatment

Start with the end in mind.

How much money do you honestly need to make per month?

Which property strategy will earn you this money?

Can you obtain the money required to generate you the passive income you desire? If not how can it be obtained?

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Email: simon@optimiseaccountants.co.uk