What is Positive Cash Flow?

The nirvana of property investment is to create a situation where your efforts pay for themselves. You don’t need to dip into any other income source and, potentially, the money you earn provides the cash to purchase further real estate. 

This, in its most simplistic terms, in regard to property, is the definition of positive cash flow. 

The Ins and Outs of Property Investing and Positive Cash Flow 

• Defining what is positive cash flow
• A positive cash flow example
• A quick word about negative property cashflow

Defining what is positive cash flow 

Positive cash flow means that a property creates an income that exceeds all the ownership costs and it also appreciates over time.

Thus, it increases your net worth and is a valuable investment. 

A positive cash flow example

A good example of an investment property that provides you with positive cash flow is as follows: 

You purchase a property for, let’s say, $600,000. 

The ongoing costs are: 

• Annual mortgage repayment: $15,750
• Annual maintenance & management costs: $3,995
• Annual rates & insurance: $3,950

Thus, the total outgoing costs for the property equals $23,696 

You receive $28,155 as annual rental income. Minus the outgoings, this leaves a delta of $4,459 profit.

In addition to this, the property increases in value over time (as does the rent)—let’s say an average of 4.6% per year. This modest estimate takes into account any potential anomalies where property prices fall for a while (this is why the percentage increase might look a little low). 

Once you see the figures written down, it becomes clear that a property that generates positive cash flow is exactly what any real estate investor should be aiming for. Even when you deduct tax from the profits, you should easily be able to achieve a long-term return that equals or exceeds more traditional avenues, such as savings accounts and bonds. Another advantage is that your equity in the property/s increases year-on-year. Plus, you always have assets that you can sell if necessary.

Another advantage is that real estate is generally far less volatile than other investing alternatives, such as stocks and shares.  

A quick word about negative property cash flow

Negative property cash flow isn’t necessarily a bad thing. That is, if you’re in it for the long haul. Even if you have a shortfall of, say, $100 per month, the appreciation of the real estate over 5+ years can still yield a healthy profit.

This is why many investors are prepared to service an affordable negative cash flow amount for longer-term benefits. 

However, this isn’t suitable for all investors. Budgeting for that $100 extra dollars per month might not be feasible for many. Those who dabble in property might well find it overly challenging. While larger-scale portfolios can absorb negative amounts, if you only have one or two properties then this won’t necessarily give you the flexibility to “borrow: from one to repay the shortfall of another...

Of course, all investing comes with risks. However, managing a healthy positive cash flow should be the aim of everyone interested in the BRRRR model (buy, rehab, rent, refinance, repeat). The viability will also impact the terms on which you’ll be able to finance your first and subsequent property purchases. The better the potential and actual positive cash flow, the easier it will be to get favorable interest rates. 

Want to Finance a Positive Cash Flow Property? Contact BRRRR Loans Today

The savvy investor is always on the lookout for ways to further their portfolio. BRRRR Loans is your perfect partner, with some of the best value money lending available today. With low interest rates, fast approval times, and no need to divulge any income or tax details, we’re the go-to provider for real estate investors across the country. 

Head to https://www.brrrr.com for more info and contact us today for a confidential chat.