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Free cash flow (FCF)

Free cash flow (FCF)

What is Free Cash Flow?

Free Cash Flow (FCF) is a modified version of Cash Flow that also factors in capital expenses spent on property upgrades. This is different from Cash Flow because FCF accounts for reinvestments in the business over the operating requirement.

The FCF is usually lower than the Operating Cash Flow because upgrades to your property (eg. new fridges, new walls, etc.) would need to subtracted out of the Operating Cash Flow.

Nevertheless, it is still an extremely important metric for co-investors and lenders because it paints a better picture around the financial situation. For example, if you're a landlord who only invests in turnkey properties, you likely have very few upgrades on a regular basis. Contrast this to a flipper who holds the property long term or a property developer. The two groups have different capital needs and will likely have different processes with lenders.

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