Cash flow should be on every investors mind before purchasing properties. A positive cash flow means more money is coming in than going out in your investments. A negative cash flow means that investors have to supplement investments with cash from their savings or profits from other deals.
Cash flow can make or break an investing business. Many investors not only lost their investment portfolios, but also had to file personal bankruptcy when the real estate market bubble collapsed.
Investors who fail to budget their cash flow realistically or don't allow for unexpected expenses will fail and could lose everything. At many real estate clubs, I am asked how I have thrived in a down market. The answer is I do my due diligence to ensure my cash flow is enough to protect my investments.
For rental properties, maintain occupancy levels at above 95%. No matter how good of a price you negotiate when buying houses, without rental income they will generate a negative cash flow.
When setting the rent amount, the price needs to be more than the mortgage note. Rental income should allow for upkeep of the property, insurance costs and administrative fees. You also want to be able to set aside money for unexpected emergencies.
Novice investors might take the net profits from a rental investment property and use that money for purchasing more properties. A better idea is to put that money back into the home. By paying down the mortgage note, investors can pay off investment properties much faster. This will increase their cash flow tremendously.
Savvy real estate investors will take that positive cash flow and apply it towards paying off another investment property until their investment portfolio has several homes that generate income with very little expenses.
Investors who use this strategy can weather most housing turmoil. Owning fewer homes with paid mortgages is better financially than owning many homes with mortgage payments. Owning several homes free and clear can help investors find lenders willing to finance further home purchases. Traditional lenders will refuse to finance additional home purchases if the real estate investor has several properties that have mortgages.
Real estate investing is my business. I have many years of experience in real estate. On the Simon Volkov website I have created a real estate investment articles library. These articles offer information free of charge about every aspect of real estate investing. New articles are added daily.
Before making a single property purchase, educate yourself to protect your portfolio and your personal finances. You don't want to make a mistake that could cost you your home.