Cash Flow

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Owning properties with a positive cash flow is a great basic strategy when it comes to real estate investment. After all, even if the value of your property plummets, a decent cash flow can still serve to pay your bills and keep you in the black. In this way, real estate investors are often able to keep themselves afloat throughout lean economic times.

An important thing to remember before getting into a cash flow investment is that you need to calculate all of your expenses in order to properly assess your revenue. Some investors make the mistake of calculating their cash flow by taking their total rent money and subtracting their mortgage payments, forgetting utilities, maintenance, taxes, and other expenses. Further, it is also important to account for potential difficulties, like vacancies, evictions, property damage, and the costs that go into tenant turnover.

A good rule to go by is the 50% rule, which states that you should expect expenses to total about 50% of the gross rent (or 40%, if you self-manage). Many investors, and even many brokers will tell you that you are getting a good deal if you can simply get a property where the rent equals at least one percent of the purchase price, but this is a significant fallacy that is not held by more experienced real estate professionals.