What is Cash Flow?

Cash flow is an important concept in real estate investing. It's basically the money that's left over after all of your expenses are paid. For example, let's say you're renting out a property for $1,200 per month. Your mortgage payment is $800 per month, and your other expenses (taxes, insurance, etc.) add up to $200 per month. That leaves you with $200 in positive cash flow each month. 

Positive cash flow is great, but it's not always easy to achieve. In some markets, it may be tough to find properties that will generate enough rental income to cover all of your expenses. And even if you do find a property with positive cash flow, there's always the chance that something could go wrong and you'll have to dip into your savings to cover repairs or vacancies. 

That's why it's important to have a healthy cushion of cash on hand when you're investing in rental properties. A good rule of thumb is to have at least six months' worth of mortgage payments saved up before you even start looking for investment properties. That way, if something does go wrong, you'll be able to cover the costs without putting your investment at risk.

The Benefits of Positive Cash Flow

There are several benefits of having positive cash flow from your rental properties. First of all, it means that your investment is generating income from day one. If you're looking at a long-term hold strategy, that income can help offset the costs of ownership while you wait for the property to appreciate in value. 

Positive cash flow can also help you build wealth over time. If you reinvest that extra money back into the property (by making improvements or paying down debt), you'll increase the equity in your investment. And if you purchase additional investment properties, that positive cash flow can help you qualify for loans on those properties and grow your portfolio more quickly. 

Finally, positive cash flow gives you peace of mind as an investor. If something does go wrong with the property or the market takes a turn for the worse, you'll know that you have the resources to weather the storm without putting your investment at risk. 

Cash flow is an important concept for any real estate investor to understand. It's basically the money that's left over after all of your expenses are paid—and it can be a great way to build wealth over time if used correctly. If you're thinking about investing in rental properties, make sure you have a healthy cushion of cash saved up first so that you can weather any storms that come your way.