There are many articles in this magazine about“ building cash flow” using rental real estate. This is a goal every real estate investor should strive for because if you want to build wealth AND support yourself with your investments, you need POSITIVE cash flow! The interesting thing about building cash flow is that it becomes consistent and typically increases annually. It is similar to compound interest paid on savings accounts or reinvesting stock dividends. Unlike rehabbing, flipping, and contract assignments( which are just“ jobs” like any other JOB), cash flow increases over time and allows you to be“ free” of the insecurities that most people experience when employed by others. It is truly a wonderful thing!
The big question regarding how to build consistent, reliable, and safe cash flow relates to risk. I have discovered after 50 years in the rental business that there are two primary ways to create positive cash flow. The first is through rentals held long term. I prefer singlefamily homes for many reasons but primarily because the management of these properties fits my personality. I typically have only 1520 % turnover each year which saves me a lot of cash flow from turnover expenses. Low turnovers also allow me to“ have a life” and not be saddled with constant management( Many years ago I controlled apartments on a college campus with 100 % turnover every year. I quickly learned that I did NOT want to live that kind of lifestyle).
If you maintain a longterm goal of keeping your rentals“ forever,” you will wake up one day and the loans will be paid off. Your cash flow will increase by 500 % or more in one day and you will realize that all your hard work and sacrifice was worth it! In addition, over time, your rents will increase due to inflation( I remember punching numbers into my HP12C calculator in 1985 and telling my wife,“ Honey, can you believe that our $ 400.00 per month rentals will be bringing in $ 1,000 per month in ten years?” We were both amazed!
Regarding the subject of risk, I believe your risk is low with the above scenario( especially if you selfmanage your own property). A way your risk can be reduced even further is by distancing your name from your rentals and keeping it off the deeds in the courthouse. Privacy of ownership is the cornerstone of financial security. How do you do these things? I hope I have made that obvious: Use a separate Land Trust for each of your rentals and real estaterelated assets.
The secondbest way to increase the cash flow is to“ be the bank.” How do you think banks make so much money? They borrow from the Federal Reserve at a much lower rate of interest than what they charge their customers and profit from the spread. I like this model but the way the banks do it is too risky for me. If the borrower defaults, some type of foreclosure is required. Foreclosure is expensive, timeconsuming, aggravating, and creates sleepless nights. I like sleeping.
Image from Canva Pro
62