The most successful property management professionals are effectively using investment cash flow analysis to better manage the growth of their business. Leonard Baron, real estate professor and writer for Zillow, will break it down and share his straightforward rental property cash flow metrics so your business can become a cash cow.

1. The Keys to Cash Flow
Investment Analysis

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4. Keys to Cash Flow Analysis
Making Smart Decisions with Proper Due Diligence on
Investment Properties
Instructor – Leonard Baron, MBA
• Long Term Real Estate Investor
• Owns and Manages Many Properties
• Long Term Real Estate Consultant
• Past Real Estate Lecturer at San Diego State University
• Teaches or Guest Lectures at SDAR, SDCLL, USD,
UCSD, The Career Compass, Qualcomm, etc.
• MBA at USC, Undergraduate from James Madison University
Learned Many a Hard and Expensive Lesson and Hopes to Help
You Learn those Hard Lessons Without Having the Financial Pain
He’s Experienced!
ProfessorBaron.comDueDilligenceInstitute.org

5. Polling Question
Time for A Polling Question!
When investing in real estate,
should you target the properties
with the best location, location,
locations, in your area?

6. Categories in Due Diligence Process
What We’ll Learn in the
Course Today
Projecting a Targeted
Property’s Cash Flow is One
3. INVESTOR RENTAL CASH FLOWS of the Important Steps in
Making Smart Real Estate
Investing Decisions!
REMEMBER:
All of the Applicable Due
Diligence Steps Are Vitally
Important to Helping You
Make Better Decisions!

7. Investment Real Estate
Investment Returns Come From Either….
1. Appreciation in Value - Doesn’t Pay Bills and Cannot be
Counted Upon; or
2. Positive Flow – Does Pay the Bills!
To-Do: Pencil Out – “Pro-forma” Your Deal Cash Flows with
Conservative Estimates to Calculate a
“Cash On Cash” (COC) Return.
Once You Know Your COC Returns, Is It a Good Deal?

8. Polling Question
Time for A Polling Question!
What are the long term rates of
return on real estate investments?
• 10%
•0%
•Negative %
•It Depends

9. Investment Rental Real Estate
Let’s Look at What Other Assets Produce Before We
Learn How to Calculate Real Estate Investment
Returns.
If You Invested Your Hard Earned Cash Into:

10. Are you Making a Smart Financial Decision?
Taking Money Out of Your Financial Assets…
[CDs, Bonds, Stocks = Low to High Risk but
Liquid]
Presumably Earn Interest, Dividends
and/or Appreciation in Value and Hopefully
Increases Your Wealth Over Time
Is Placing That Money Into Real Estate…
[Real Estate = High to Extremely High Risk and Liquid]
Going to Earn You More Wealth at a Similar Risk
Level for a Similar Time Horizon?

11. Let’s Proforma a Deal:
Fair, Moderately Priced Property – Project Investment Returns
Moderately
Priced Property
$40,000
Equity Cash to
Close – Is Far More
Important Than
the Price
That’s What Really
Counts!
“In the Black!”
Conservative Cash
on Cash Returns!
6.15%

12. Prize Property! Investment Rental Real Estate
Fancy Prize
Downtown
Condo
$150,000
“In the
Red!”
-8.12%

13. Rental Properties – Asset or Liability?
“It Will Cash Flow and be a
Good Deal Because I’ll Pay
All CASH….” Not True!
The Right Question:
What is the COC %? $40,000 $150,000
3 Vital Items in
Projecting Returns:
1. Cash Down payment
2. Cash Flows/Income -
% Returns
3. Risk – Are the
Numbers Good?
Your Instructor Learned
About Fancy Prize
Properties the Hard Way!
6.15% -8.12%

14. Key Takeaway: Not All Real Estate is Equal
“Where Do You Want to Invest Fair Deals Cash on Cash:
(Excluding Prizes!)
Your Hard Earned Cash?
Single Family 2% - 5%
Prize Properties Are No Prize! Town Homes 3% – 6%
Target The Location – of the
Moderately Priced Condos/Apart 4% – 8%
BoringProperties
•10%++ - Sounds
TGTB True!
But It All Depends On What
You Decide to Acquire!

15. $150,000
Nominal Yearly Cash Flows
3 Town Homes
1 Condo
Cumulative 10 Year Cash Flows + 5% OCC
3 Town Homes $113,612
1 Condo ($131,961)
Difference = $245,579

16. So How Long Until the Prize Turns Positive?
Year 10!
Fancy
Downtown
Condo
10 Year Cumulative Negative = ($117,593)
Note: Lots of Assumptions Herein

17. So How Long Until the Prize Turns Positive? 22!
RENT/ EXPENSE INCREASE
PROPERTY OPERATIONS 3.00%
STATEMENT Year 11
Year Year 12 Year 13 Year 14 Year 15 Year 16 Year 17 Year 18 Year 19 Year 20 Year 21 Year 22
$ 3,091 $ 3,184
Monthly Rent - www.Zillow.com, www.craigslist.org or other Source $ 3,279 $ 3,378 $ 3,479 $ 3,583 $ 3,691 $ 3,802 $ 3,916 $ 4,033 $ 4,154 $ 4,279
Vacancy & Collect ion Loss 5.00% $ 155 $ 159 $ 164 $ 169 $ 174 $ 179 $ 185 $ 190 $ 196 $ 202 $ 208 $ 214
Effective Gross Rent $ 2,936 $ 3,025 $ 3,115 $ 3,209 $ 3,305 $ 3,404 $ 3,506 $ 3,611 $ 3,720 $ 3,831 $ 3,946 $ 4,065
Operating Expenses
Management Fee Percent age =
8.00% $ 235 $ 242 $ 249 $ 257 $ 264 $ 272 $ 281 $ 289 $ 298 $ 307 $ 316 $ 325
Insurance $ 40 $ 42 $ 43 $ 44 $ 45 $ 47 $ 48 $ 50 $ 51 $ 53 $ 54 $ 56
Maint enace/ Repairs/ Ot her $ 101 $ 104 $ 107 $ 110 $ 113 $ 117 $ 120 $ 124 $ 128 $ 132 $ 135 $ 140
HOA $ 672 $ 692 $ 713 $ 734 $ 756 $ 779 $ 802 $ 826 $ 851 $ 877 $ 903 $ 930
Miscellaneous/ Lawncare/ Ut ilit ies $ 34 $ 35 $ 36 $ 37 $ 38 $ 39 $ 40 $ 41 $ 43 $ 44 $ 45 $ 47
Propert y Taxes Increase %/ Year
2.00% $ 559 $ 570 $ 581 $ 593 $ 605 $ 617 $ 629 $ 642 $ 655 $ 668 $ 681 $ 695
Total Operating Expenses $ 1,640 $ 1,684 $ 1,729 $ 1,775 $ 1,822 $ 1,871 $ 1,921 $ 1,972 $ 2,025 $ 2,079 $ 2,135 $ 2,192
$ 1,296
Net Operating Income $ 1,341 $ 1,387 $ 1,434 $ 1,483 $
Nominally Positive Finally!
1,533 $ 1,586 $ 1,639 $ 1,695 $ 1,752 $ 1,812 $ 1,873
MORTGAGE PAYMENT AND CASH FLOWS
Int erest Rat e 4.2500% $ 1,845 $ 1,845 $ 1,845 $ 1,845 $ 1,845 $ 1,845 $ 1,845 $ 1,845 $ 1,845 $ 1,845 $ 1,845 $ 1,845
Amort izat ion Years 30
$
Monthly Cash Flow (COULD BE NEGATIVE) (549) $ (504) $ (458) $ (411) $ (362) $ (311) $ (259) $ (205) $ (150) $ (92) $ (33) $ 28
$
Annual Cash Flow (COULD BE NEGATIVE) (6,583) $ (6,050) $ (5,499) $ (4,930) $ (4,342) $ (3,736) $ (3,110) $ (2,463) $ (1,796) $ (1,107) $ (396) $
$337 337
Cash on Cash (Annual Cash Flow / Tot al Equit y) --4.79% BE NEGATIVE
COULD -4.40% -4.00% -3.59% -3.16% -2.72% -2.26% -1.79% -1.31% -0.81% -0.29% 0.25%
But Still Cumulative Negative Below!
This spreadsheet is protected - the passcode "duediligence" will unprotect it.
www.ProfessorBaron.com
Cumulative Negative $ (130,056) $ (142,608) $ (155,237) $ (167,929) $ (180,667) $ (193,437) $ (206,218) $ (218,993) $ (231,739) $ (244,433) $ (257,051) $ (269,566) ($269,566)
Negative Cash Flows at Bottom – Includes 5% Opportunity Cost of Capital

18. RENT/ EXPENSE INCREASE
PROPERTY OPERATIONS 3.00%
STATEMENT 23
Year Year 24 Year 25 Year 26 Year 27 Year 28 Year 29 Year 30 Year 31 Year 32 Year 33
Year 34!
Year 34
Monthly Rent - www.Zillow.com, www.craigslist.org or other 4,539
$ 4,407 $ Source $ 4,675 $ 4,816 $ 4,960 $ 5,109 $ 5,262 $ 5,420 $ 5,583 $ 5,750 $ 5,923 $ 6,100
Vacancy & Collect ion Loss 5.00% $ 220 $ 227 $ 234 $ 241 $ 248 $ 255 $ 263 $ 271 $ 279 $ 288 $ 296 $ 305
Effective Gross Rent $ 4,187 $ 4,312 $ 4,442 $ 4,575 $ 4,712 $ 4,854 $ 4,999 $ 5,149 $ 5,304 $ 5,463 $ 5,627 $ 5,795
Operating Expenses
Management Fee Percent age =
8.00% $ 335 $ 345 $ 355 $ 366 $ 377 $ 388 $ 400 $ 412 $ 424 $ 437 $ 450 $ 464
Insurance $ 57 $ 59 $ 61 $ 63 $ 65 $ 67 $ 69 $ 71 $ 73 $ 75 $ 77 $ 80
Maint enace/ Repairs/ Ot her $ 144 $ 148 $ 152 $ 157 $ 162 $ 167 $ 172 $ 177 $ 182 $ 188 $ 193 $ 199
HOA $ 958 $ 987 $ 1,016 $ 1,047 $ 1,078 $ 1,111 $ 1,144 $ 1,178 $ 1,214 $ 1,250 $ 1,288 $ 1,326
Miscellaneous/ Lawncare/ Ut ilit ies $ 48 $ 49 $ 51 $ 52 $ 54 $ 56 $ 57 $ 59 $ 61 $ 63 $ 64 $ 66
Propert y Taxes Increase %/2.00%
Year $ 709 $ 723 $ 737 $ 752 $ 767 $ 782 $ 798 $ 814 $ 830 $ 847 $ 864 $ 881
Total Operating Expenses $ 2,251 $ 2,311 $ 2,373 $ 2,437 $ 2,503 $ 2,570 $ 2,639 $ 2,710 $ 2,784 $ 2,859 $ 2,936 $ 3,016
Net Operating Income $ 1,936 $ 2,001 $ 2,068 $ 2,138 $ 2,210 $ 2,284 $
Mortgage Paid Off !!!!!
2,360 $ 2,439 $ 2,520 $ 2,604 $ 2,690 $ 2,780
MORTGAGE PAYMENT AND CASH FLOWS
Int erest Rat e 4.2500% $ 1,845 $ 1,845 $ 1,845 $ 1,845 $ 1,845 $ 1,845 $ 1,845 $ 1,845 $ - $ - $ - $ -
Amort izat ion Years 30
$
Monthly Cash Flow (COULD BE NEGATIVE) 91 $ 156 $ 224 $ 293 $ 365 $ 439 $ 515 $ 594 $ 2,520 $ 2,604 $ 2,690 $ 2,780
$
Annual Cash Flow (COULD BE NEGATIVE) 1,095 $ 1,877 $ 2,684 $ 3,517 $ 4,377 $ 5,265 $ 6,181 $ 7,126 $ 30,239 $ 31,246 $ 32,285 $ 33,357
Cash on Cash (Annual Cash Flow / Tot al Equit y) - COULD BE NEGATIVE
0.80% 1.37% 1.95% 2.56% 3.18% 3.83% 4.50% 5.18% But Still Negative!
21.99% 22.72% 23.48% 24.26%
This spreadsheet is protected - the passcode "duediligence" will unprotect it.
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Cumulative Negative $ (281,949) $ (294,170) $ (306,194) $ (317,986) $ (329,508) $ (340,719) $ (351,574) $ (362,027) $ (349,890) $ (336,139) $ (320,661) $ (303,337)
($303,337)

19. RENT/ EXPENSE INCREASE
PROPERTY OPERATIONS 3.00%
STATEMENTYear 35 Year 36 Year 37 Year 38 Year 39 Year 40 Year 41 Year 42 Year 44!44
Year 43
Year
$ 6,283 $ 6,472
Monthly Rent - www.Zillow.com, www.craigslist.org or other Source $ 6,666 $ 6,866 $ 7,072 $ 7,284 $ 7,503 $ 7,728 $ 7,960 $ 8,198
Vacancy & Collect ion Loss 5.00% $ 314 $ 324 $ 333 $ 343 $ 354 $ 364 $ 375 $ 386 $ 398 $ 410
Effective Gross Rent $ 5,969 $ 6,148 $ 6,333 $ 6,523 $ 6,718 $ 6,920 $ 7,128 $ 7,341 $ 7,562 $ 7,788
Operating Expenses
Management Fee Percent age =
8.00% $ 478 $ 492 $ 507 $ 522 $ 537 $ 554 $ 570 $ 587 $ 605 $ 623
Insurance $ 82 $ 84 $ 87 $ 90 $ 92 $ 95 $ 98 $ 101 $ 104 $ 107
Maint enace/ Repairs/ Ot her $ 205 $ 211 $ 217 $ 224 $ 231 $ 238 $ 245 $ 252 $ 260 $ 267
HOA $ 1,366 $ 1,407 $ 1,449 $ 1,493 $ 1,537 $ 1,584 $ 1,631 $ 1,680 $ 1,730 $ 1,782
Miscellaneous/ Lawncare/ Ut ilit ies $ 68 $ 70 $ 72 $ 75 $ 77 $ 79 $ 82 $ 84 $ 87 $ 89
Propert y Taxes Increase %/ Year
2.00% $ 899 $ 917 $ 935 $ 954 $ 973 $ 992 $ 1,012 $ 1,032 $ 1,053 $ 1,074
Total Operating Expenses $ 3,097 $ 3,181 $ 3,267 $ 3,356 $ 3,447 $ 3,541 $ 3,637 $ 3,736 $ 3,838 $ 3,943
Will You Still Be Alive
Net Operating Income $ 2,872 $ 2,967 $ 3,065 $ 3,167 $
to Celebrate This Day?
3,271 $ 3,379 $ 3,490 $ 3,605 $ 3,724 $ 3,846
MORTGAGE PAYMENT AND CASH FLOWS
Your First True Positive Cash Flow!!!!!
Int erest Rat e 4.2500% $ - $ - $ - $ - $ Your First True Positive Cash
- $ - $ - $ - $ - $ -
Amort izat ion Years 30
Flows!!!!! Hopefully You'll Be Alive to Celebrate This Day!
$
Monthly Cash Flow (COULD BE NEGATIVE) 2,872 $ 2,967 $ 3,065 $ 3,167 $ 3,271 $ 3,379 $ 3,490 $ 3,605 $ 3,724 $ 3,846
$
Annual Cash Flow (COULD BE NEGATIVE) 34,463 $ 35,605 $ 36,783 $ 37,999 $ 39,253 $ 40,547 $ 41,883 $ 43,261 $ 44,683 $ 46,149
Cash on Cash (Annual Cash Flow / Tot al Equit y) 25.06% BE NEGATIVE
- COULD 25.89% 26.75% 27.64% 28.55% 29.49% 30.46% 31.46% 32.50% 33.56%
This spreadsheet is protected - the passcode "duediligence" will unprotect it.
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Cumulative Negative $ (284,041) $ (262,638) $ (238,987) $ (212,938) $ (184,331) $ (153,000) $ (118,767) $ (81,445) $ (40,835) $ 3,273
$ 3,273!

20. Key To Remember…
Penciling Out Your Deal is a Must
Some Properties Take Decades to Turn Positive
That is No Way to Invest!
If You Don’t Learn This…
You’ll Figure that Out Around the Time You Retire

21. Proforma Wrap-Up – How Do You Determine
How Do You Determine…
Rents
Craigslist.org, Call on Signs, MLS,
Real Estate Professionals
Vacancy
Tough to Do – Apartment Building
Surveys, Drive Area, Call Listings
Maintenance and Repairs
Expenses
Estimate 1% Per Year
SFRs More Than Condos (HOA Fees
Cover Some Condo Costs)

22. Polling Question
Time for A Polling Question!
Now you know how to pencil out a real estate
deal, approximately what percentage of real estate
investors know how to do this calculation?
90%
75%
50%
<20%

23. Proforma Wrap-Up – How Do You Determine
How Do You Determine…
Budgtets, Property Taxes + CFDs
(Mello Roos) and Add-ons –
Property MLS Listing and County
Website
Insurance
Call an Agent: SFR,
Condo/HOA-6, Home or
Landlord, Earthquake, Flood
Mortgage &PMI
Talk to Lender

24. The Next Three Slides Just Show My
Simple Spreadsheet That You Can
Download and Use On Your Own
You Can Download This Foolproof Spreadsheet –
ProfessorBaron.com –
Chapter 3 – Rental Property Cash Flows

25. You Will Download This Foolproof Spreadsheet –
ProfessorBaron.com – Chapter 3 – Rental Property Cash Flows
Page 32
Textbook
<=Note

26. Moderately Priced Property

27. Prize Property
Will the Below Knowledge Save You some Money in Life?
You Invested $150,000 for That Negative CF?

28. Wrap Up and Recommendations
1. Pencil Out Your Deal With Conservative Numbers
2. Pass On Negative Cash Flow Deals
3. Prize Properties are NO Prize!
4. Buy Properties You Plan to Keep for a Lifetime
5. Do Your Due Diligence, It Is Time Consuming, But Less
Time Consuming Than Unwinding a Bad Real Estate
Deal!
Due Diligence Guides at:
ProfessorBaron.com
DueDiligenceInstitute.Org