There’s a popular saying among real estate investors. Cash flow is king. Cash flow, in a general sense, can be defined as the money being transferred into and out of a business. In the context of investments, there are two types of cash flow: positive and negative. Real estate investors are on a mission to maximize their positive cash flow (their passive income).
When this happens, investors are equipped to more quickly scale their real estate investments, save for retirement, and reach other financial milestones.
Sounds pretty simple, doesn’t it?
The truth is, some real estate investors get tripped up when it comes to cash flow: and it has to do with some misplaced priorities.
Predictions, Appreciation, and Big Mistakes
Finances are complicated. The financial decisions that people make are even more complicated. When we look at the history of investment, how people try to earn money, what people choose to place their trust and money in, a pattern emerges. Usually, it’s not all that pleasant.
None of us have to think back that far to remember an instance where investments went belly-up in a market crash. The Asian Crisis in 1997. The dotcom bubble in the 2000s. The housing bubble and credit crisis of 2007-2009.
Plenty of people put all of their chips on the table and lost it all when these bubbles burst. Why? They rely on predictions.
Any sort of investment requires a certain level of knowledge about economics and finance. You will notice fairly quickly, however, that the people who lose the most on their investments are the people who invest based on predictions and speculations. It’s just not a reliable method!
There will always be a cycle of boom and bust and while we can potentially reap great rewards, no one really knows when that bust will come. When it does happen, trust is breached, investors retreat for a time, and then, eventually, either due to a short memory, hopes that it will be better this time, or some other reason that can’t be explained, they try investment based on speculation all over again.
There has to be a better way—and there is.
2 Big Reasons Cash Flow is King
Cash Flow Insulates Your Investments from Economic Crisis
Turnkey real estate investment is primarily concerned with passive income over appreciation. Appreciation is a bonus for your eventual exit strategy sometime down the line and for supporting your cash flow in the present. In other strategies and forms of investment (like stocks), the success of your investments absolutely hinges on appreciation. If the market takes a dive, you can lose it all in an instant.
When you’re more concerned with cash flow, you’re focused on the now. Your investments generate income from the start, through any market conditions, through booms and bust. While you may have to adjust for market fluctuations, you are consistently building your wealth—not waiting for a golden moment to capitalize on your investments.
Real estate is also unique in that there will almost always be demand for it. If you are diligent in selecting your market, you won’t have to worry too much about problems that may interrupt your streams of income.
Investing for cash flow means that you are taking charge of your financial future. You’re not waiting for predictions to come true. You’re not hoping for your big break or for a good roll of the dice. You’re playing it safe and playing it smart—and that’s how the best investors in the game play it.
Cash Flow Protects Your Retirement
In America, some of us are still under the impression that our pensions and Social Security are going to be enough to carry us through retirement. The truth is, it only works that way for the oldest among us, and as people take out their retirement earlier and people live longer, it becomes more and more difficult to rely on traditional retirement funds.
That’s where cash flow comes in. When you set up streams of passive income, you can rest easy knowing that you won’t have to be financially dependent on anyone in your retirement. You won’t have to continue working after you want to retire.
The earlier you start investing in real estate, the more time you’ll have to scale, diversify, and build up those streams of income—not only achieving your dream retirement, but the wealth that seems out of reach for so many Americans.
Start the new year on a strong financial foot. Invest today!