Investing In Real Estate Comes Down To Positive Cash Flow


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It is difficult to be a real estate investor without earning positive cash flow.  Those investors who calculate the profitability of their investments before getting involved in them are able to determine their positive cash flow.  Those real estate investors who put in the work necessary when it comes to researching properties and determining accurate numbers are able to take advantage of their effort, as they will be able to have a rough idea of their positive cash flow.

When calculating positive cash flow, it is important to realize all the sources of negative cash flow and calculate them correctly.  Factors that are considered negative cash flow include the mortgage, the taxes, the maintenance, the insurance, the costs associated with tenants, in the case of a rental property and any other costs associated with holding, buying or selling property.

According to the 50% formula, many investors who invest in rental properties just assume that these costs, not including the mortgage, will cut into 50% of the positive cash flow.  The mortgage in turn, cuts into the other 50%.  Investors should be looking for a bit of capital left over at this point.

For example, let us assume that the combined rent comes to a total of $5,000.  For simplicity sake, we will assume that our negative cash flow of all miscellaneous fees, not including the mortgage will be $2,500.  If the mortgage costs $2,500, we may get lucky and break even.  Ideally the mortgage should be less then $2,500.  If the mortgage is only $2,000, we could make an estimated $500 a month in positive cash flow.

Only choose to invest in properties that are likely to result in a positive cash flow.  Investors who don’t perform the calculations and end up with a property that they are putting money into every month only have themselves to blame.  The 50% formula is easy to perform and every investor should at least be using it to calculate his or her positive cash flow.  Investors who are looking for a more detailed formula will have to calculate each of their negative cash flow factors separately in order to determine the profitability of a property.

If a property has been determined to not have a positive cash flow, an investor has two options.  They can either pass on the property or they can negotiate with a seller and obtain a better price.  Don’t elect to purchase a property that is likely to result in a loss of money even if it is assumed that the property will go up in value over the course of the investment.

Positive cash flow is the lifeblood to any real estate investment.  Those who can accurately determine that they are going to make money on an investment can purchase properties with confidence.

Asking questions with these tips in mind will help save real estate investors thousands.  For more ideas related to real estate investing, call or visit us a Homevestorsfranchise.com.  We are the nation’s number one home buying franchise with over 15 years of experience.  Our company has a vast assortment of real estate investment and real estate franchise opportunities available to help you grow your real estate business.  Come see us for more information.

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