In simple terms, cash flow in real estate refers to the net difference between income received and expenses incurred by your rental property. The ideal situation is one in which income outpaces expenses and the investor makes a profit.
One of the most typical strategies to profit from real estate is to maintain a positive cash flow. Positive cash flow homes are popular among real estate investors because they offer a steady income that begins to accrue fairly soon after the purchase of the property. One of the main strategies to make investing your full-time career is to generate a profit from your rental property.
The majority of incoming funds in the context of rental buildings come from the tenants’ monthly rent payments. It may also include income from other sources, such as vending machine sales, laundry services, or income from any other amenities your rental property offers.
On the other hand, outgoing cash refers to any expenses you’ll have to incur to maintain your rental property. Maintenance costs, legal fees, taxes, and other expenses may be included. In general, keeping an eye on and lowering your property’s expense is one of the greatest strategies to preserve positive cash flow.
The holy grail of real estate investing is a property with positive cash flow. It is what enables investors to make real estate purchases and pay off loans without having to turn to other sources of income (i.e. without negatively affecting your current lifestyle). And it’s what enables investors to go quickly from one investment property to a number of them, generating wealth (through capital gains) and income (through rent) to support the lifestyle they actually want.
Top Advantages of Cash Flow-Proof Real Estate
Investors who include cash flow-positive properties in their portfolio reap a number of advantages, including:
1. Self- Supporting: Real estate with a healthy cash flow pays for itself (i.e. income more than covers expenses). Therefore, any capital gains you experience are like creating money out of nothing.
2. Cash flow fosters security: Your increased monthly income might contribute to building a bigger savings account that will serve as insurance against unforeseen expenses in the future (like medical bills, car maintenance, etc.).
3. Lifestyle: Your excess income will grow as your cash flow property assets mature, giving you an even better lifestyle while you keep investing.
4. Highly Leverageable: Gaining additional properties (a portfolio) with the help of surplus revenue can help you move closer to your financial objectives.
5. Less Risk: If the financial or real estate markets experience unpredictability, you can be protected by the revenue from cash flow-positive properties.
Disclaimer- This information is to be used as a general guide only and is not to be considered any form of financial advice.
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