Cash flow (buy-to-let)
The monthly difference between rental income and all property-related costs (loan instalment, landlord insurance, co-ownership charges, property tax, property management fees, borrower insurance). Positive cash flow means the property is self-financing; negative cash flow represents a monthly savings effort borne by the investor. Banks using the differential method factor this balance into the debt-ratio calculation.
Key points
- Positive cash flow means rents cover all costs with no savings effort from the investor.
- It includes the loan instalment, borrower insurance, landlord insurance, charges, and property tax.
- Banks using the differential method incorporate net cash flow into the debt-ratio calculation.
- A slightly negative cash flow may be acceptable if capital appreciation is expected.
Frequently asked questions
How can the cash flow of an existing buy-to-let be improved?
Several levers are available: renegotiate or refinance the loan to reduce the monthly payment, optimise the tax regime (switching to LMNP real-cost to depreciate the property), reduce management fees by self-managing, or increase rent within legal limits at lease renewal. An annual review with the broker helps identify available optimisations.
Why do banks apply a 30% haircut to rents in their analysis?
The 30% haircut anticipates risks inherent to any rental investment: vacancy between tenants, potential non-payment, and refurbishment costs. This banking prudence is standardised and applies even when a lease is already in place with a solvent tenant. It explains why the cash flow presented to the bank differs from the investor's projected actual cash flow.
What is the difference between pre-tax and post-tax cash flow?
Pre-tax cash flow measures the balance between inflows (rent) and outflows (costs, loan instalment), without considering income tax on rental receipts. Post-tax cash flow incorporates income tax and social levies on net rental income. This is the figure that reflects the investor's actual return: it can differ significantly depending on the tax regime chosen (micro-foncier, real, LMNP).
In practice
An investor receives €800/month in rent. After deducting €520 for the loan instalment, €60 for borrower insurance, €80 for charges and monthly property tax, and €40 for management fees, their monthly cash flow is -€20, a very limited savings effort.
Official sources
- Housing and financing information · ANIL
- Mortgage credit (official guide) · Service-Public.gouv.fr