If you are not familiar with the attraction to real estate and the reason why most of the wealthy own it, this information will be insightful. Having read the 4 Wealth-Builders of Real Estate, you will learn that Cash Flow is one of those key wealth builders. Cash flow primarily comes from income generated from rent. After covering operating expenses as well as debt service, what is left over is referred to as cash flow.
Cash flow is a powerful and unique characteristic of real estate for the many opportunities it creates for investors:
Pay Down Debt Service
Cash flow allows for someone else (renters) to pay down your mortgage. Investors are literally getting paid to own the asset and having someone else (or the performing asset) pay down the liability
Compounding Power for Reinvestment
Saving the cash flow and investing it all back into real estate allows for compounding to take control and eventually create massive wealth. One asset generates cash flow which accumulates for capital to be invested in the next asset in so on. Each of those assets continue to grow in value and the snowball (your nest egg) becomes so large you will laugh.
Support Your Lifestyle
Many people choose to live off the cash flow. While compounding allows for more wealth to be built, choosing to live off of the cash flow is a savvy and wise way to enjoy the fruits of your investing. Certainly, living of of real estate passive income is more enjoyable than living off of earned income, the kind you sweat 40 hours a week to make. With real estate, the investment capital that works hard to bring you back more dollars can be used to enjoy life. My wife and I certainly celebrated with a steak dinner after receiving a nice check from the cash out refinance of one of our homes. The asset paid for it!
Save Towards Rainy Days
Regardless of how you choose to enjoy the cash flowing power of real estate, it is wise and prudent to always allocate a portion of the cash flow for future repairs or capital expenditures. Operating expenses are a cost of doing business. Apartment investors understand it and more single-family investors should recognize the same. As business owners, keeping that cash ready to quickly and easily deploy for repairs takes the headache and hesitation out of running your business, or managing your multi-family or single-family home wisely and effectively.
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Rodney Robinson II