What Is Cash Flow and How Does It Let Real Estate Investors Make Money?

Buying rental properties for cash flow is the way to make money and get rich in real estate investing.

Investing in rental properties not only grants you short-term rewards (i.e., passive income), but it also grants you long-term appreciation on your investment property. One rental property can snowball into buying more real estate to build and grow a thriving business and secure your retirement plan.

With all this said, almost anyone can start investing in real estate with little capital, accumulate equity, and gain leverage to buy more rental properties. And do not wait for the right time to invest; just make sure you do your due diligence before you hone in on a rental property for cash flow.

Related: What Can You Do to Always Have Strong Positive Cash Flow Income Property?

What is cash flow?

In real estate terms, cash flow is the byproduct of owning a rental property and leasing it to tenants for a monthly rental income. To elaborate on this, real estate investors look for rental properties reaping positive cash flow returns, or, in other words, they invest in positive cash flow properties.

The higher the NET cash returns, the better the ROI. This means that real estate investors want to reap extra income from renting their property after all expenses and costs have been discounted. Some of these expenses include: mortgage payments, carrying costs, operating costs, etc. So, in other words, the rental income must cover your total expenses and reap a surplus of cash as extra income to deem a rental property profitable.

To find the best positive cash flow properties, investors must conduct real estate market analysis as well as investment property analysis first and foremost. Without the right research and analysis, you won’t guarantee yourself long-term rewards.

Mashvisor’s investment property calculator is the perfect tool to help investors estimate their ROI in just a matter of minutes. This tool allows real estate investors and real estate agents alike to calculate net cash flow returns after discounting total expenses and costs of owning the property.

What does cash flow look like in successful real estate investing?

What is cash flow in real estate investing? Positive cash flow returns!

To be profitable in this business, real estate investors capitalize on positive cash flow properties for big gains. These gains come in short-term as well as long-term rewards; the monthly rental income is the passive income, while gaining appreciation on the property is the long-term financial reward real estate investors acquire down the line.

If you want to build a profitable real estate business, choose to invest in positive cash flow properties reaping the highest rewards in the hottest real estate markets. If you don’t know where to look or how to begin your property search, head over to Mashvisor to find the best profitable properties in a matter of minutes.

What is cash flow  in real estate investing? Having a long-term business plan

Without a clear plan and specific incremental goals in mind, you won’t succeed in this business. Set your long-term vision and choose a real estate strategy aligned with manifesting this vision. Most importantly, be pragmatic and do not skip steps. By skipping steps, we mean make sure you study the housing market, learn fundamental real estate principles, and assess your real estate property on a macro and micro level.

It is crucial you understand how the market conditions on a big picture have an effect on your real estate decisions on a micro level. If you neglect the macro, you increase your risk of financial loss or even worse – bankruptcy.

What is cash flow in real estate investing? Hiring a professional real estate agent

Hiring a professional real estate agent or real estate broker is always a good idea, especially if investing in real estate is a new hobby you have taken up. A real estate agent has the right knowledge and expertise to find you what you are looking for, conducting the right analysis and assessment, and most importantly negotiating for the right price. And let’s not forget he/she will also take care of all the tedious paperwork and necessary legal steps to finalize a real estate business transaction between a property seller and a property buyer.

What is cash flow in real estate investing? Finding the best real estate investments

To reap riches, investors must capitalize on real estate opportunities reaping the biggest rewards. The real estate market is competitive, and there are millions of successful real estate investors vying for the same rental properties in the hottest real estate markets. To beat your competition, have the right forethought in identifying real estate gems before everyone else. To do this, you must stay on a steep learning curve and keep up with housing market and economic conditions. It takes work and dedication to become a real estate expert and a mogul in this business.

Related: All You Need to Know About Rental Property Mortgage Rates in One Place

What is cash flow in real estate investing? Investing in a prime location

Hone down on a good location and an attractive neighborhood for attracting the right tenants and maintaining high rental demand. The right location gives landlords leverage in choosing tenants and maintaining high rental income for a good profit. Furthermore, a good location mitigates the risk of vacancy and in turn the risk of bankruptcy.

What is cash flow in real estate investing? Accumulating long-term appreciation

As previously mentioned, a rental property in a good condition and situated in a prime location increases the overall value of the property overtime. This is a major win for real estate investors because they are able to sell the property for a lot more than the original purchase price and earn a big fat profit margin from the sale.

What is cash flow in real estate investing? High rental demand

Remember this equation: favorable location + favorable market conditions = high rental demand

What is cash flow in real estate investing? Keeping expenses at a minimum

With a positive cash flow property under your belt, you can be rest assured to offset expenses with surplus cash flow. With the help of Mashvisor’s investment property calculator, real estate investors and real estate agents alike are able to estimate the ROI by inputting their costs and expenses.

What is cash flow in real estate investing? Learning how to value rental properties  

Investment property analysis is crucial to guarantee positive cash flow returns and profitable margins. Do not neglect to conduct investment property analysis before you close the deal on a house.

What is cash flow in real estate investing? Multiple investment properties

Growing and diversifying your investment portfolio is key to building wealth in real estate. Use equity as  leverage to buy multiple investment properties to grow your wealth and rental income. Treat real estate investing like a business and think in business terms on how best to grow your profits in the long term.

Related: How to Deal with Negative Cash Flow Properties

Conclusion

Cash flow analysis is crucial to a healthy and profitable real estate investment portfolio.  All real estate investors and real estate agents must be proactive in ensuring profitable returns and a good ROI before closing a deal on a rental property.

Our last advice to you is to:

  • Learn your market area.
  • Do not discount real estate comps.
  • Keep your expenses in check.

If you liked this post, head over to Mashvisor blog for more real estate insight!

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