Cash Flow 101: Buy and Hold Rental Properties

Cash flow from rental income is one of the best ways to make money and increase your financial portfolio.   Many of the world’s millionaires have earned their wealth through income-producing real estate investments. What makes real estate such an attractive investment?

Rental properties have many long-term advantages. First of all, rental property is an appreciating asset; the longer you hold onto your property once you buy it, the more value it acquires.   However, what investors often find to be the most attractive benefit to real estate investing, is the passive income that the property has the potential to produce.  You can build equity by having your tenant pay off your mortgage, and not have to worry about coming up with the funds to pay it down.

Cash flow is considered the money left over each month after you pay your mortgage, and other expenses of the property. You should reinvest this money, or put it away in your savings to maximize growth.

Income – Expenses = Cash Flow

This is a simple math formula. It’s the same one that you use for your personal finances. And just like with your personal finances, with rental properties, you need to know your numbers really well. Besides the fixed monthly expenses like mortgage, taxes, and condo maintenance fees, you should calculate in planned future expenses, as well as those surprise expenses that can throw your calculations off track.

You want to keep your passive income positive. The more it is, the more profit you make.  Some things to consider are utilities such as sewer (landlords usually pay this instead of tenants), repairs, vacancy risk, property manager expenses, and air conditioner maintenance.

Understanding how cash flow works, while fully doing your due diligence on the property, will ensure your passive income remains positive.

Having an accurate calculation of your monthly rental income puts you at a definite advantage to be able to strategically and successfully realize your financial goals much more quickly than otherwise.

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