Targeting Cash Flow in Rental Properties
Real estate investing is all about cash flow. Cash flow. Cash flow. You’ve heard it so many times that it almost becomes annoying. Even people that have never even considered buying a rental property will ask you if your properties cash flow (yes, it’s a noun and a verb). Now, while I go against the grain on a lot of issues, targeting cash flow in your rentals is not one of these issues. You absolutely need to target cash flow and if your rentals do not cash flow, then please think deeply about what you can do to remedy this situation, if not in the current rental then the next one.
You see, having say one single-family rental that is not cash flow positive may not be a big deal. Presumably you have a job and can subsidize the underperformance of one property with your W2 or 1099 income. You may even be able to subsidize two or more, depending on how much you make. The point however is that rental properties are supposed to be ASSETS NOT LIABILITIES!!!! If your property is cash flow negative and you are taking money that you earn at your day job and using it to pay for rental property expenses, then that property is not an asset but rather a liability. Even if you are able to subsidize several rental properties, maybe with the hopes that they will eventually appreciate in value or start getting higher rents, it still doesn’t make sense to buy liabilities because you will be limited in the number that you can buy.
Theoretically you can buy rental after rental after rental if they are all cash flow positive. The more you buy the more money you make and each subsequent purchase strengthens your financial situation rather than detracts. However, if your properties are cash flow negative, you will eventually be limited by your available funds and will have to stop investing to pay down debt. You will have to sit on the sidelines while your financial house gets back in order. It’s tough to hide a cash flow negative property from the banks when you go to get a loan for your next one.
2 thoughts on “Targeting Cash Flow in Rental Properties”
I found your page because I was trying to start using Quickbooks Online. I just wanted to comment so you know your posts were appreciated. We are actually a small family that began investing in real estate in approx. 2007 and are targeting cash flow.
Thanks for the kind words and I’m glad that you’re in real estate. It’s an awesome way to generate wealth and if you’re successfully targeting cash flow, then you’re taking care of the P&L side as well. Let me know if you want to contribute to the site in any way, either by contributing some of your knowledge by writing articles or answering questions. Best of luck to you in your investing!