One of my favorite reasons for investing in real estate is CASH FLOW!
Positive cash flow is a top priority for our family. We could invest for appreciation (and we do), “but positive cash flow is the most upfront and beneficial gain you could make. Having positive cash flow means paying all costs associated with your property using rent and still having profit. In other words, it’s having a net positive after paying expenses using your collected rent.” Visit Mashvisor for their insight on this.
A few of the property expenses we typically have on a monthly basis are taxes, insurance, mortgage payments, property management fees, and maintenance expenses. We also set money aside for repairs as those inevitably come up (often on vacation)! We just returned from Florida for our Kids Spring Break last week and while we were there, my property manager reached out saying a septic system at a duplex was backed up into the tenants’ sinks/baths. That’s never a fun call (see our baby’s face below for a look at how she feels about it)! We had that septic pumped three years ago and I wasn’t expecting to already be doing this again, but that’s part of what we signed up for when investing in this property.
Even after those expenses mentioned above including the septic, that property should cash flow a little over $400 this month ($200 per unit). We have some units that cash flow around $600 per month. The higher the better of course, but interest rates have impacted what properties can cash flow.
Just imagine though if you had a handful of properties or passive investments that are cash flowing $2000 – $4000 per month, how could that change your life?
Maybe you can cut back at work and have a more time with your kids?
Maybe it gives you the ability to take a nice vacation every year or buy a vehicle that your family needs (we’re in the market for a van right now)?
Maybe you can add on to your house?
What if you can retire early?
The options are endless and every person’s goals are different. It’s worth thinking about the impact that extra cash flow might have on your daily life and finding ways to add those streams monthly or annually. It won’t happen overnight, and it takes a lot of patience, hard work, strategy to get there. It’s worth it though!
One of the beauties of real estate is you can slowly increase rents over time to keep up with inflation and rising maintenance/repair costs. If you have fixed debt on the property, that monthly expense will stay the same. We have a few properties with 30-year loans at a fixed rate of 3.75% (those are tough to find today unless you’re assuming a loan).
You may not have the time to find properties that are cash flowing at the level you’d like or have the time to manage them. If that’s the case, maybe it’s time to consider a syndication (aka group investment)?
We’ve worked on deals with loan assumptions in the 3-4% range that were cash flowing in day 1. Currently we have a 100-unit B class property under contract in an A class area of Lynchburg, VA that will cash flow over 6% to investors in year one. Cash flow should steadily increase over the 5 – 7 year hold. The IRR is projected at 15-17% and equity multiple is 2 – 2.5x. So if you put $100,000 into the syndication, you may see $100,000 – $150,000 profit after that 5-7 year hold and receive your initial investment back (this is NOT guaranteed, but a projection).
The beauty of this type of investing is you still get to take advantage of a majority of the benefits of real estate (cash flow, appreciation, building equity, diversification, tax benefits), but it’s very PASSIVE.
Reach out if you’d like to learn more.
