confident Cash Flow is the Elusive Beast in Real Estate

Through every cycle, many real estate investors forget why they invested in real estate in the first place. When the market appreciates, we all come to expect that real estate prices will rise forever. Why not pay full asking price for a asset when it will appreciate 20% in one year?

If you put 10% down on a 0,000 house, for example, you could earn 200% return on your money. Never mind that the house could only rent for 0 a month. Assuming a 7% interest rate, the interest only payment is 50 per month. Add taxes and assurance into the mix, and you're seeing at a negative cash flow of 0 a month. Ouch!

Beast

The logic of the last few years was that the appreciation would wipe out all negative cash flow sins. The reality of today is very dissimilar as many wannabe real estate investors are experiencing.

Ask any grizzled real estate investor and he would tell you that inescapable cash flow from a single family rental house is an elusive beast.

But what about all those other investors who live off their revenue properties? First of all, observation how it's always "other investors" who are seeing success? Those "other investors" paid down their mortgage to the point where their payments are less than their rental income. So if they own a house that is worth 0,000 but they only owe ,000 to the bank, their payment would be 3 a month, fully amortized. Since we assumed that the rental rate is 0 per month, their net revenue is 0 - 3 = 7.

That's inescapable cash flow, is it not?

The sass is yes, but at what price? If they only owe ,000 to the bank, they have 0,000 of their money in the property. What is their return on investment?

Let's work it out. 7 per month in net behalf equals ,804 per year. Divide ,804 by 0,000 and you'll get 4.54%. That's right folks. The "other investor" is getting a whopping 4.54% return on their investment. Can you think of someone else speculation vehicle that can beat 4.54% returns? Stop when you get to 100.

Did I mention that being a landlord is hard work, yet? You've heard of collecting rents and clogged toilets, haven't you? Nuff said.

So why the heck would whatever want to invest in real estate?

That's a in effect good question. In fact, it should be the first demand that any wannabe real estate investor should ask. The second demand should also be the same as the first question. Wannabes should ask themselves this demand at least three times.

If they pass this first screening process, they will see that the true sass to why they or whatever else would invest in whatever is...cash flow.

What?!?

We all invest for cash flow. I don't care if it's a stream of cash flows or one big cash flow (cash chunk?) in the end when we sell; we all invest for the cash flow. And this cash flow has a price. Find the right price and the cash flow becomes that much sweeter.

For example, let's say that we bought the rental house mentioned above for 0,000 instead of 0,000. Our interest payment would be 8 per month based on 10% down. Add taxes, assurance and asset supervision fees, and we'll be seeing at 3 per month. All of a sudden, we'd be seeing at 0 - 3 = per month. Yippee!!

Not only that, but our return on speculation is ( x 12) / ,000 = 5.13%. The amount is not stellar but it took a lot less money to earn that return. By the way, a month in inescapable cash flow on a single family house based on 10% down is nirvana in real estate investing land. Don't believe me? Go ask your local grizzled investor.

All right, so how do you find the 0,000 house? That is a demand for someone else article.

Like I said, "Positive cash flow in real estate is an elusive beast."

confident Cash Flow is the Elusive Beast in Real Estate