Cashflow
Definition:
Cash flow refers to the net amount of money moving in and out of a real estate investment over a certain period. It’s the difference between the rental income generated by the property and all expenses, including mortgage payments, property taxes, insurance, and maintenance. Positive cash flow means the property is making more money than it costs to operate, while negative cash flow means the opposite.
🔍 Did You Know?
Investors often seek properties with positive cash flow to ensure their investments are self-sustaining and profitable. However, some investors may tolerate short-term negative cash flow if they anticipate property appreciation or future rental increases.
Examples:
Example 1:
You own a rental property that generates $3,000 in rental income each month. After subtracting expenses—$1,500 for the mortgage, $500 for maintenance, $300 for insurance, and $200 for property taxes—you’re left with $500 in positive cash flow each month.
Example 2:
An investor purchases a multi-family building. The rental income is $10,000 per month, but the mortgage and operating expenses total $9,500. The remaining $500 is positive cash flow.
Why It’s Important:
Cash flow is one of the most important metrics in real estate investing because it directly impacts the profitability of an investment. Properties with positive cash flow can help investors build long-term wealth, as they provide income even while holding the property. On the other hand, negative cash flow can be a sign that the property is not generating enough income to cover its costs, which can lead to financial strain.
Who Should Care:
- Real estate investors seeking to generate passive income through rental properties.
- Buy-and-hold investors focused on long-term income generation.
- Property managers aiming to keep properties profitable for owners.
Picket Team
Picket Team
Create Your Picket Account
The open real estate company
Picket is on a mission to make real estate open, efficient, and fun for all
Open Product
