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How To Do Overseas Cash Flow Math
Buying real estate overseas is your number-one opportunity and best possible strategy for building a diversified portfolio of hard assets to generate cash flow to fund the lifestyle, the retirement, and the legacy you want.
The key is buying right. To do that, you must be able to project monthly cash flow and net annual yield reliably before committing to a purchase.
Our spreadsheet below—which is one we use ourselves when considering an investment overseas—will help you do that, while also allowing you to compare the return from renting a property short- vesus long-term.
You fill in the cells highlighted in green. Everything else will be calculated for you. (You’ll need to hit the calculate button for each section as you go through and again if you make any changes.)
Specifically, here’s how to approach this. Start with the purchase figures—the cost of the property plus the cost of furniture (if necessary) less the amount being borrowed (assuming a mortgage or some other form of financing)… as follows:
- Input A: Purchase Price (including all closing costs)
- Input B: Furniture Cost (if applicable)
- Input C: Financing(amount of mortgage, if applicable… if you’re paying all cash, do not enter anything into this field)
These three inputs (A, B, and C) will give you your Net Cash Investment (Calculation A).Next project your income, based on projected rental and occupancy rates, figured first if the property is rented long-term and then if the property is rented short-term… as follows:
- Input D: Monthly Rental Income Renting Long-Term
- Input E: Daily Rental Income Renting Short-Term
- Input F: Occupancy Rate Long-Term
- Input G: Occupancy Rate Short-Term
Inputs D and F will give you your Net Monthly Cash Flow if renting Long-Term (Calculation B).
Inputs E and G will give you your Net Monthly Cash Flow if renting Short-Term (Calculation C).Now figure your expenses, because the only yield figure that matters is net. Gross projections are misleading and irrelevant. Project your total costs of operating the rental as follows:
- Input H: Cost of Rental Management Renting Long-Term
- Input I: Cost of Rental Management Renting Short-Term
- Input J: HOA Expense Renting Long-Term (same as Input K)
- Input K: HOA Expense Renting Short-Term (same as Input J)
- Input L: Utilities Renting Short-Term
Inputs H and J will give you your Total Expenses Renting Long-Term (Calculation D).
Inputs I, K, and L will give you your Total Expenses Renting Short-Term (Calculation E).
The spreadsheet will calculate your Total Expenses, Net Monthly Income, and Annual Income for you, both for renting Long-Term and Short-Term.Now it’s time to calculate your Net Yield, renting Long-Term versus renting Short-Term. You should process these projections based both on the Purchase Price of the property and the Current Value of the property. The spreadsheet will do the math to fill in the Purchase Price for you, based on your Inputs A and B, and then your Purchase Price Net Yield.
However, the Current Value Net Yield calculation cell is green (Input M). You should fill this in based on your estimate of the current value of your property every time you return to this spreadsheet. The variables considered here will vary over time, so you should keep this link handy so you can refigure your Yield projections based as necessary.
Finally, you should look at your Cash-on-Cash Yield renting Long-Term versus Renting Short-Term. This requires you to enter your Mortgage Payment (Input N). The spreadsheet will do the rest, calculating your Monthly Net Cash Flow, your annual Net Cash Flow, and your Cash-on-Cash Yield renting Long-Term versus Renting Short-Term.
Next project your income, based on projected rental and occupancy rates, figured first if the property is rented long-term and then if the property is rented short-term… as follows:
- Input D: Monthly Rental Income Renting Long-Term
- Input E: Daily Rental Income Renting Short-Term
- Input F: Occupancy Rate Long-Term
- Input G: Occupancy Rate Short-Term
Inputs D and F will give you your Net Monthly Cash Flow if renting Long-Term (Calculation B).
Inputs E and G will give you your Net Monthly Cash Flow if renting Short-Term (Calculation C).Now figure your expenses, because the only yield figure that matters is net. Gross projections are misleading and irrelevant. Project your total costs of operating the rental as follows:
- Input H: Cost of Rental Management Renting Long-Term
- Input I: Cost of Rental Management Renting Short-Term
- Input J: HOA Expense Renting Long-Term (same as Input K)
- Input K: HOA Expense Renting Short-Term (same as Input J)
- Input L: Utilities Renting Short-Term
Inputs H and J will give you your Total Expenses Renting Long-Term (Calculation D).
Inputs I, K, and L will give you your Total Expenses Renting Short-Term (Calculation E).
The spreadsheet will calculate your Total Expenses, Net Monthly Income, and Annual Income for you, both for renting Long-Term and Short-Term.Now it’s time to calculate your Net Yield, renting Long-Term versus renting Short-Term. You should process these projections based both on the Purchase Price of the property and the Current Value of the property. The spreadsheet will do the math to fill in the Purchase Price for you, based on your Inputs A and B, and then your Purchase Price Net Yield.
However, the Current Value Net Yield calculation cell is green (Input M). You should fill this in based on your estimate of the current value of your property every time you return to this spreadsheet. The variables considered here will vary over time, so you should keep this link handy so you can refigure your Yield projections based as necessary.
Finally, you should look at your Cash-on-Cash Yield renting Long-Term versus Renting Short-Term. This requires you to enter your Mortgage Payment (Input N). The spreadsheet will do the rest, calculating your Monthly Net Cash Flow, your annual Net Cash Flow, and your Cash-on-Cash Yield renting Long-Term versus Renting Short-Term.
Returns / Yield Calculator
| Long Term | Short Term | |||
|---|---|---|---|---|
| Monthly Rental Income | $ | |||
| Daily Rental Income | $ | $ | ||
| Occupancy Rate | % | $ | % | $ |
| Net Monthly Cash Flow | $ | $ | ||
| Expenses | ||||
| - Rental Management | % | $ | % | $ |
| - HOA | $ | $ | ||
| - Utilities | $ | $ | ||
| Total Expenses | $ | $ | ||
| Net Monthly Income | $ | $ | ||
| Annual Income | $ | $ | ||
| Yield Calculation Purchase Price | $ | % | % | |
| Yield Calculation Current Value | $ | % | % | |
| Cash on Cash Calculation | ||||
| Mortgage | $ | $ | ||
| Net Cash Flow | $ | $ | ||
| Annual Cash Flow | $ | $ | ||
| Cash on Cash Yield | % | % | ||
Free Interactive Rental Yield Spreadsheet
Below is an interactive spreadsheet that should help you to project monthly cash flow and net annual yield for any property you’re considering buying overseas and to compare the return from renting the property short versus long term. You can use this spreadsheet to plug in your own data points and play with variables to see the effect on your return on investment.
Start by filling in the cells in green. Cells highlighted in blue and yellow will then be calculated for you.
Note the “Current Value” field. This allows you to estimate the current net yield over time, as the property value moves up or down. To start, your calculations will be based on the total purchase price of the property, including all closing costs.
How To Use:
Cell A1 is for a property name or identifier. If you’re going to analyze or compare more than one property at a time, please save each in a separate spreadsheet and give it a name.
Cells D5 to D7 are for your purchase costs. Include in the purchase price an estimate for closings costs. Furniture is only if you’re going to rent furnished. If you plan to get financing, you can input the mortgage amount here and the monthly payment in cells E28 and G28 to calculate your Cash on Cash yield which is how much your invested cash is earning.
Cells E10 and F11 are for rental income. Input the monthly rent expected in E10 for a long-term lease and the daily rental rate for short-term rentals into F11.
D12 and F12 are for occupancy rates. You can put 100% in D12 for long-term, but if you tenants change annually, you’ll typically lose some rent in the turnover. Maybe a few days or maybe a month. F12 is for short-term occupancy rates. Some real estate agents and developers will tell you that you can expect 80% or 90% occupancy rates. Don’t believe them. You want to input an annual average occupancy rate here. High season may get 90% occupancy, but low season may get 0% occupancy. 50% to 60% annual occupancy is reasonable to expect in many markets, but you aren’t likely to get an annual occupancy rate above 80% in any market for short-term rentals.
D16 and F16 are for rental management expenses. For long-term rentals it is typically one-month’s rent or 8.333%. For short-term rentals it will range from 15% to 35% or more. 20% to 25% is typical.
Lines 17 and 18 are for monthly expenses. If you’ll have other expenses than HOA fees or utilities, you can just lump them in here. If you have an annual expense, like property taxes, divide by 12 before entering the number.
C26 is where you can enter the current value of a property you own to see what your current rental yield is compared to the rental yield on your purchase price.
Line 28 is where you put in your monthly mortgage payment to get to the calculation of your Cash on Cash yield. If you don’t have a mortgage, you can ignore that part of the spreadsheet.
About The Monthly Rental Income Amount
The Monthly Rental Income amount for long-term rentals will generally be based on annual one-year rental agreements. Vacancy rates for long-term rentals are generally low. However, if you lose one month a year due to turnover, that brings your occupancy rate down to 91.67%. If your tenant renews for a second year, then your occupancy goes up to 95.8% assuming you lose one month between that tenant and the next. That’s why we generally use an occupancy figure of 95% for long-term rental projections.
About The Daily Rental Income Amount
The Daily Rental Income amount for short-term rentals is the gross amount charged to the renter. You’ll want to use a blended daily figure for markets with fluctuating daily rates depending on the time of year. This allows for variances high-season versus low-season. The occupancy rate for a short-term rental might be 90% to 100% in the high season, in which case use the high season daily rate and the annual occupancy rate.
For most markets, the annual occupancy rate for a short-term rental will be in the 60% to 80% range. For more remote markets, you might have average annual occupancy as low as 35% and see all your traffic in high-season (when that is the only season, as it is in some markets).
About The Expenses
For expenses, we’ve included Rental Management as a percentage and HOA and Utilities to keep things simple. You could also have maintenance and repairs to factor in.
For a short-term rental, include the cost of cleaning as part of the Utilities expense. For a long-term rental, Utilities are generally paid by the tenant even if renting furnished.
About Appreciation
Over time, your property should appreciate in value. You’ll want to calculate the net yield on the future Current Value of the property when comparing your yield to other properties or opportunities you might be considering.
Of course, selling a piece of property comes at a cost, meaning you can’t simply take the yield on the current value at face value. Still, it can give you a starting point to decide whether or not it might be time to sell and reinvest elsewhere.
About The Cash-on-Cash Calculation
The cash-on-cash calculation takes financing into account. Deducting your mortgage payment from the cash flow from the rental and then comparing that net cash flow to your actual cash invested gives you your Cash-on-Cash Net Yield Calculation. That figure is what you’re earning in cash relative to the amount of cash you invested in the property.
You’ll also have some equity growth from your mortgage payments, but that’s beyond the scope of this tool.
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