Cash flow is money you receive monthly or quarterly from real estate investing. It is the money that the real estate investment generates by collecting rental income and after paying all the expenses. It’s my favorite, because it’s what you get to take home to spend or reinvest. It’s often even sheltered from income taxes and can be taken tax-free (we’ll talk more about this when we discuss tax benefits).
Cash flow is calculated by taking the rental income of the property and subtracting out the expenses, loan payments, and reserves. You can refer back to our report “Identifying High Performance Real Estate Investments” for more detailed information on how it is calculated. Or, sign-up to receive this free report at: http://bit.ly/2HPo4Ue
The sophisticated investor understands that cash flow is the lifeblood of the investment. If cash flow is positive, it makes owning real estate a joy. However, if cash flow is negative, it can be extremely stressful.
Real estate investors usually fall into one of two categories. One category is the investor that buys based on cash flow. The other category is the investor who purchases property planning for appreciation (hoping that the price will go up in the future and he can sell for a profit). We call the people in the second category “speculators.” You can make a lot of money speculating, but you can lose it all just as quickly. At ApartmentVestors, we don’t like speculating because it can be extremely risky. Why take that risk if you can invest more conservatively and still make really good returns on your investment?
The problem with buying solely for appreciation is that it usually only works when markets go up. We’ve all seen over the last several years that this doesn’t always happen. When the market doesn’t increase, those investors who invest for appreciation can lose it all.
Instead of speculating, at ApartmentVestors we invest based on solid investment property fundamentals. We evaluate a property’s cash flow, condition, and historical performance. We then base our offers on the income that the property generates. Not what it might someday do. We use the historical performance to determine value and predict future performance.
By investing in the cash flow that the property generates, it lowers your risk. It does this by allowing you to determine how long you want to hold the asset. Because the property is producing enough income each month to cover all your bills and make a profit, you are not forced to sell even when the market goes down. The best part is, if you invest for cash flow and the market goes up, you not only increase your cash flow, but you also benefit from appreciation (what the speculator was looking for in the first place). What could be better than that?
Unlike stocks and bonds, cash flow producing investment properties are not affected as much by global events and market fluctuations. Over the past few years, many investors who have had their money invested in stocks know all too well how much global events have affected the value of their stocks. A strongly worded statement from the leader of a country, a poorly worded tweet or even a natural disaster, can send stock prices dramatically higher or crashing down overnight, leaving the investor pulling his hair out wondering what just happened to his retirement.
Real estate investors who invested for cash flow don’t worry as much about global events, which they cannot control. Because leases are almost always locked in for a year or more at a time, the income doesn’t change on a daily basis. This produces a much steadier income stream for the investor, which is much less likely to respond to daily global market fluctuations. This gives you peace of mind when you listen to the news at night. We enjoy the security and stability that cash flow producing real estate provides, unlike the daily ups and downs of the stock market.
One last big benefit of investing in cash flow producing real estate is that you have much more control over your investment. Unlike the stock market, where you can only decide when to put your money in and when to pull it out, and you have little control of what happens between those two points, with real estate you can do several things to affect the cash flow. Also, with real estate you have control over the management as well as the physical condition of the asset.
You can affect the cash flow by being a good property manager, creating efficiencies in the management, upgrading the property, or by increasing rent. Even small changes can make a huge difference. Raising the rent by $10 per apartment across a 100-unit apartment complex increases the cash flow by $1000 per month and the value by $120,000 or more (Please refer to the our investment report – Identifying High Performance Real Estate Investments for more information on how to calculate value).
Last but certainly not least – did I mention that you get to cash big checks every month? This is my favorite benefit of investing in cash flow producing real estate. This type of real estate produces income you can spend every month. It’s a great feeling to receive your check each month, year after year, for an investment you made once. It’s even better when those checks increase in size, which can happen very easily.
As you can see, one of my favorite benefits of real estate investing is massive cash flow. It can lower your risk while allowing you to still benefit from market growth. Income producing real estate has a level of control not found in other asset types. It also produces income month after month, even years after your initial investment.
Throughout history, there has never been another asset type that has created more wealth for more people than real estate. ApartmentVestors team will teach you how to invest like the pros and maximize your investment dollars.
Knowledge is power. It’s our goal to give you the knowledge you need to identify winning investment real estate, make better investment decisions, and become the next millionaire real estate investor.
If you are excited about cash flow, keep reading this series as we share one of the best ways to increase your wealth: appreciation. Be sure to keep an eye out for it.
If you have questions or want to learn more about investing in multi-family real estate, call Craig Domann at (719)310-6441 or Spencer Cullor at (913) 324-5900 at ApartmentVestors to ask your questions directly.
About ApartmentVestors
Our business is to serve the investment, education, and consulting needs of beginning, sophisticated, and high- net worth real estate investors. To learn more about ApartmentVestors and how we can help you get to the next level in your real estate investing success please contact us or
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