Cash flow real estate investing is what many people seem to be focusing on. Their monthly profit, driven by their rental properties is consistently the apple of their eye. However, we’re here to tell you why this is not only the wrong idea, but a dangerous one as well.
Cash flow in real estate investing is very important. This helps investors stay afloat and balanced during difficult times. Think of cash flow as the bare minimum or the cost of entry. It’s the minimum requirement needed from real estate investing. Cash flow is important because this is the money that will help for repairs for the house or coverage when the property is vacant.
If an investor is losing money every month, this can feel like they’re digging themselves into debt. But the real issue is when investors start glorifying the extra couple hundred a month that they get from cash flow real estate investing. It’s more important to remember this should never be an end goal… only the bare minimum!
Cash flow in real estate investing is a driving factor for so many investors for what we’ve seen. As soon as their properties dip a little bit because of rapairs or vacancies, we have seen investors panic and want to sell their property as soon as possible. This is problematic though because they are not thinking about the bigger picture, or their end goal.
They sell the property and move on knowing that they sold the property during a slight dip in the properties overall lifespan, instead of holding on tight till the market starts working in their favour. We like to think time in the market pays huge dividends and if you leave too early, it will be difficult to see any return on your investment. Don’t see cash flow as the end goal, see it as we said as the bare minimum as well as a security savings for anything to do with maintaining the property.
When starting out in real estate, cash flow is a driving factor into what investors consider success and depend on it to make profit every month.
However, it’s important to note that cash flow should be thought of as a ‘rainy day fund’ rather than profit, because inevitably the tenant will need the landlord for some kind of repair. This is why it’s important to have money saved so you know what needs to be saved additionally, and what cash flow from real estate investing can be thought of as profit.
Remember: the big money from real estate investing does not come from cash flow. The big money comes from long term investments in terms of appreciation and home equity. Make sure you, as an investor, have a goal in mind other than what you hope your monthly cash flow looks like, as this will help keep you driven and motivated if times in your real estate investing journey ever gets difficult.
To read a great article that discusses the dangers of only focusing on Cash Flow, Click Here!
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