As you consider investing in real estate, the most important one-liner to remember is: Cash flow is king.
Cash flow solves all problems. We’ve all heard that cash is king in purchasing homes – really cash is king in all types of negotiation. That is no different in rental real estate investing. If you have cash flow, you can buy more property, build net worth, and make monthly income immediately.
The idea that CASH FLOW IS KING is a BIG reason fix + flips are much closer to an active income (via business) than passive income (like rentals). That has to do with the cash vacuum that is flipping a property UNTIL you sell. Up until the point of closing, that property is costing you money – from materials, labor, interest, utilities, insurance, taxes, landscaping, and on. That’s NOT the case with rentals.
Every investor has their own rules, guidelines, and must-haves when they analyze investment properties. When we invest a rental, we look for roughly $300/month CASH FLOW per unit per month. A single-family home should have at least $300; a triplex would have ~ $900 and so on. Here’s a quick list of expenses we consider. NOTE: We don’t include property management because we do it ourselves, we also don’t include capital expenditures because our properties are 100% new when they’re done.
3. Utilities (W/S/G)
5. Vacancy and Maintenance Rates (15% gross rents)
6. Mortgage (principal and interest)
We look at a possible rental investment’s purchase price and gross rents. Calculate gross monthly rent MINUS above expenses = cash flow. It BETTER be positive. Cash flow of $100/unit/month is a very common rule of thumb for investors.
If you could buy positively cash flowing properties (at least $100/mo per unit), what stops you from buying more thereby building massive generational wealth all while increasing your income? Nothing. Nothing stops you from doing that, and that is why