Cash Is King – The Power of Positive Cash Flow

Today, I would like to illustrate the importance of positive cash flow in real estate investing. As I mentioned in previous articles, positive cash flow is a key element in real estate. Positive cash flow is important because it can allow you to make money in any real estate market – even during times when real estate prices are going down. However, please note that positive cash flow is not the only criteria when considering real estate opportunities, however, it is one of the tools used to identify good investment properties.

At Real Experts Inc, we generally purchase positive cash flow properties. At a minimum, we would consider buying properties that breaks even now, but have the potential to generate positive cash flow in the future. Let me illustrate the power of having positive cash flow properties in your investment portfolio and impact it can have on your investment returns.

About one year ago, I purchased a property in a small town in Ontario for $88,900 (a triplex). The price might shock you because it seems very low, but trust me; this is a real deal that I have completed. My total out of pocket cash investment was $11,800 – this includes the 10% down payment and closing costs. The monthly positive cash flow on this property is $400. ($4800/year). Therefore, my total return on my investment is 40.6%/year! If you think that is a great return on anyone’s money, you would be right. Now keep in mind, my return figure does not include any price appreciation or the fact that I was able to purchase this property below market value. But at the end of the day, with great cash flow like this, who’s counting on the real estate market to go up? Now, deals like this are not easy to find and it takes a lot of time and research to spot the right areas, and negotiate a favourable price.

Following a strategy of only buying cash flow positive properties, below current market values, has allowed us to make money even in today’s soft real estate market. In closing, positive cash flow is a very important element in real estate investing and can deliver key benefits such as:

a) Stable returns month after month (if the property is managed right and has no vacancies)

b) Allow you to generate profits even in down markets, thereby allowing you to ride out any short-term downturns such as the one we face now.

c) Reduce risk and generate the cash you need to purchase more real estate in the future.