The Importance of Cash Flow In Wealth Building

The Importance of Cash Flow In Wealth Building

Cash

We have often heard it stated that “Cash is King.” This is logical thinking in that cash is a resource that allows us to obtain other resources that are essential for life: food, shelter and other needs. Without this liquid resource, we cannot quickly trade for other important life essentials. If all of our wealth is tied to illiquid assets (primary residence, 401k, etc.) we are at great risk of not being able to quickly convert to some cash in order to cover emergencies or any of life’s needs. So yes, cash is critical. But let’s take it one step further.

Cash Flow

When it comes to true wealth, there is one thing just as critical, and arguably more important for our focus: Cash Flow. Cash flow comes from when assets we acquire or own produce regular income. In stocks, cash flow can come in the form of quarterly dividends. In real estate, cash flow comes in the form of rental income from residents or commercial tenants.

Cash flow allows working professionals and investors alike to be compensated for the risk of investment. You are essentially being paid to hold the asset. Further, it is a tool that allows investors to weather any storm. When things get difficult in the economy and the market threatens the value of your real estate, earning income and receiving cash flow allows investors to continue to pay debt service, save for reserves and hold the asset through market fluctuations.

Lessons Learned

Many people learned the importance of cash flow in 2009 after the Great Recession. Many flippers, speculators, and other types of investors who had invested primarily for appreciation (and done well for a while) found themselves in a spot where the market had suddenly changed. Some did not have sufficient cash flow to cover the holding costs of houses they could not sell fast enough and lost it all. Some have used this experience to forever shape a new investing philosophy: that cash flow is king.

As a working professional, you likely have a sizeable retirement plan, equity in your primary residence, or investments in stocks. Step one is to consider the importance of liquidity, and next is to think of options of creating passive income while growing your wealth. Cash flow is one of the great characteristics of real estate among others (see 4 Wealth Builders of Real Estate). For this reason and more, we believe that everyone should have real estate in their investment portfolio.


Passive Investor Startup Guide

To find out more about what it looks like to invest as a passive investor in multi-family real estate, download our free Passive Investor Startup Guide here!


Popular Passive Investor Articles

– Mindset: Freedom through passive investing
– What is multi-family syndication?
– Do I have to be accredited to invest in a syndication?
– How passive investors can find great sponsors
– What to look for in potential syndicators
– About Robinson Capital


If you invest in stocks or other assets are seek to diversify your portfolio, achieve higher returns or get educated on the power of real estate, subscribe to my articles for automatic updates on new weekly content. Also, sign up for our newsletter for regular updates on our business and to learn how you can passively invest and grow your wealth through real estate.


Rodney Robinson II
Rodney@RodneyRobinsonII.com


How To Buy Multifamily Today With Downside Protection From Tomorrow’s Market
You have likely noticed the skyrocketing prices and “values” of real estate. …
3 Metrics for Investment Returns in Apartment Syndication
As passive investors in real estate syndications, the amount of jargon can …

Comments

Comments are closed.

Get your free copy of the Passive Investor Startup Guide.

Passive Investor Startup Guide