Just realized I made a mistake in computing my cash flow. The mistake is big enough to deserve a mention in today’s post. So, what is it? Property loans. There are two portions of a property loan: interest and principal repayment.
I had correctly computed my rental income and deducted all the estimated expenses — income tax, property tax, agent fees, interest cost, and maintenance cost. What was left became my net return from the property, and I treated that as my cash flow. It seemed logically straightforward.
But here’s where I went wrong: the principal repayment also reduces my cash, even though it builds equity that still belongs to me. From a cash flow perspective, this means my property can be in negative cash flow if the loan is large enough for a reduced tenor.
📊 Waterfall Chart Plan Simulation below
So why I keep thinking it doesn't affects and a positive. Reason being there is is buffer allocated for years. Personal bias. An example of Asset Rich but Cash Poor.
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