Smart investors who tread along the real estate industry emphasize more on cash flow than on property appreciation, while acquiring properties. So, do they not want their properties to appreciate? The answer is very simple – of course, they do. Appreciation of properties helps investors to refinance with greater convenience. Moreover, they can pull out cash by selling the same at any point of time they need to. However, none of these advantages actually changes the bottom-line of the game for smart investors. But before proceeding further, let us try to gain clarity about what this cash flow actually is.
Cash Flow on Rental Properties
When one purchases rental properties, one expects to make money from it every month in form of the rent flowing in. Cash flow is the amount of money that comes in the hand of the investors every month after meeting all the expenses on a rental property.
Typical expenses of rental properties include insurances, mortgages, taxes, renovations and maintenance, HOA and of course clearing the bills of property management agencies. Moreover, one has to consider the occasional vacancies as well. Some of these expenses are recurring in nature and occur every month. Again other expenses occur seldom but one has to keep those factors into consideration and maintain provision for those.
Reasons to Emphasize on Cash Flow
Inexperienced real estate investors underestimate the expenses on rental properties. Seasoned investors in this line of business suggest rookies to always error on the side of caution while calculating the expenses. Predicting the market is never easy and one should better stay away from it. Actually, no one knows for sure, when the market may suddenly crash and the prices of properties will start coming down. Considering the practical scenario, appreciation of properties may or may not occur on due time.
The best time to purchase properties is when the market is down. At such instances one will get properties below market value. While buying properties one obviously has to ascertain the cash flow factor. Buildings that have negative cash flow should always be avoided and investors must focus on rental buildings that have positive cash flow. Unfortunately, most newcomers into the commercial sector of real estate focus on property appreciation and ignore the factor of cash flow. Thus, their investments hardly turn successful.
Cash Flow on Rental Properties
When one purchases rental properties, one expects to make money from it every month in form of the rent flowing in. Cash flow is the amount of money that comes in the hand of the investors every month after meeting all the expenses on a rental property.
Typical expenses of rental properties include insurances, mortgages, taxes, renovations and maintenance, HOA and of course clearing the bills of property management agencies. Moreover, one has to consider the occasional vacancies as well. Some of these expenses are recurring in nature and occur every month. Again other expenses occur seldom but one has to keep those factors into consideration and maintain provision for those.
Reasons to Emphasize on Cash Flow
Inexperienced real estate investors underestimate the expenses on rental properties. Seasoned investors in this line of business suggest rookies to always error on the side of caution while calculating the expenses. Predicting the market is never easy and one should better stay away from it. Actually, no one knows for sure, when the market may suddenly crash and the prices of properties will start coming down. Considering the practical scenario, appreciation of properties may or may not occur on due time.
The best time to purchase properties is when the market is down. At such instances one will get properties below market value. While buying properties one obviously has to ascertain the cash flow factor. Buildings that have negative cash flow should always be avoided and investors must focus on rental buildings that have positive cash flow. Unfortunately, most newcomers into the commercial sector of real estate focus on property appreciation and ignore the factor of cash flow. Thus, their investments hardly turn successful.