Watch Out For “TOTAL PRE-TAX CASH FLOW”

When evaluating financials from a listing, be sure you always do your own underwriting and cross-check the numbers. I won’t share the full OM in order to protect the seller/broker, but I was evaluating a mobile home park the other day and while running my own analysis, which you can find here, I found that my cash-flow was significantly less than what was in the OM. After scouring each rent and expense line item and evaluating their debt calculation, I came across the following line in the OM “Principal Reduction.”

The broker was then adding this “PRINCIPAL REDUCTION” number back to the cash flow after debt line to get to “TOTAL PRE-TAX CASH FLOW.” This number is quite deceiving, as it gives the impression that the buyer would be receiving $12,016 in actual cash-flow when in fact it would be closer to $5,273. Apparently, this is common practice in marketing packages and something that you should be aware of.

At the end of the day your loan principal is being reduced each month, but this does not hit your bank account each month, which is what I consider CASH FLOW to be. Moreover, this principle reduction number is going into increasing your equity which you will receive the benefit of during the sale.

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