People who invest into stocks expect dividends. A dividend is a regular cash distribution that an investor receives at certain interval from his investment in stocks. It could either be quarterly, bi-annually or annually intervals when one receives the monetary reward. In the world of real estate, cash flow investments are somewhat like the stock dividends. The cash flow actually originates from the rents that building properties generate from tenants.
While investing into a property across the realty sector it is crucial to consider its cash flow quotient. Most people, who are new in the trade, count upon the factor of value appreciation of a property and overlook the factor of cash flow. Thus, more often than not, they get into wrong investment deals. Now, one may ask about the benefit of investing into real estate for cash flow.
Here is a practical example to explain the importance of cash flow across the realty industry. Suppose, a multi-family apartment building has 10 units and each unit earns a rent of $2,000 every month. Thus, the monthly income generated from the property is ($2,000 × 10 =) $20,000. Now, one has to pay taxes on the said property. In addition to the taxes, one has to spend on maintenance and repairing to ensure the building is in good shape and condition.
As such, approximately about 40 per cent of the net monthly income that a rental property generates goes into its taxes and maintenance. Thus, the amount of money that remains in the hand of the owner after meeting the necessary expenses is roundabout ($20,000 - $8,000 =) $12,000. As one learns how to invest in multi-family apartments, one keeps away a portion of this net income in reserve. The remaining amount actually helps one to improve one’s living standard accordingly.
On the other hand, property appreciation does not occur day in and day out. It happens only after a certain span of time. When people invest counting only on property appreciation, one has to bear the expenses of taxes and maintenance of the building till its value is appreciated.
While investing into a property across the realty sector it is crucial to consider its cash flow quotient. Most people, who are new in the trade, count upon the factor of value appreciation of a property and overlook the factor of cash flow. Thus, more often than not, they get into wrong investment deals. Now, one may ask about the benefit of investing into real estate for cash flow.
Here is a practical example to explain the importance of cash flow across the realty industry. Suppose, a multi-family apartment building has 10 units and each unit earns a rent of $2,000 every month. Thus, the monthly income generated from the property is ($2,000 × 10 =) $20,000. Now, one has to pay taxes on the said property. In addition to the taxes, one has to spend on maintenance and repairing to ensure the building is in good shape and condition.
As such, approximately about 40 per cent of the net monthly income that a rental property generates goes into its taxes and maintenance. Thus, the amount of money that remains in the hand of the owner after meeting the necessary expenses is roundabout ($20,000 - $8,000 =) $12,000. As one learns how to invest in multi-family apartments, one keeps away a portion of this net income in reserve. The remaining amount actually helps one to improve one’s living standard accordingly.
On the other hand, property appreciation does not occur day in and day out. It happens only after a certain span of time. When people invest counting only on property appreciation, one has to bear the expenses of taxes and maintenance of the building till its value is appreciated.