Why You Should Invest for CASH FLOW In Real Estate

In this module we will cover investing for cash flow. The purpose of this module is to provide an overview of why you would invest in cash flow and what income and expenses are taken into consideration. Have you ever had a long day of work where your body is fatigued, your eyes tired, but it's only Tuesday? All you're thinking is, how can I continue this for not just the rest of the week, but the rest of my life? Well, you're not alone. According to Deloitte, 77% of employees surveyed have experienced burnout. So what do we do? When we experience burnout, do we quit our jobs and open up a t-shirt shop in Costa Rica? Well, what if we have obligations like supporting a family or paying off car loans? We can't just get up and leave. But wait, there's something we've heard about called cash flow. We've heard cash flow is a magical concept that allows people to pause working for several months to pursue their own businesses or travel. Cash flow has even allowed people to retire early. In real estate investing, cash flow corresponds to the amount of money you have left over after deducting all the expenses from your income each month. A cash flow return strategy offers consistent cash, typically in the form of rent to real estate investors. When we purchase properties, we should calculate the expected cash flow beforehand and make sure it is cash flow positive. Okay, we understand investing for cash flow can help achieve financial freedom, but what if we are not rich? What if we don't come from a wealthy family, we don't have a high paying job, or we have a significant other that may not support our real estate dream? Is real estate investing still for us? Well, the best part is achieving financial freedom via cash flow is not a new concept. In fact, it's been done plenty of times before. Let's take a look. Every day, you can find individuals that are similar to you face even more barriers and still use real estate to achieve financial freedom. Here are some of my favorite headlines of recent articles written about real estate investors that got started from ground zero. Meet a couple who bought 19 properties and only four years and retired at 40. They were able to build a net worth of 1.5 million. A 55 year old who never made more than $52,000 a year, built a 25 unit real estate portfolio in four years and is now financially independent. He states, if I can do it as a basic blue collar worker raising a family, anyone can. A real estate investor who retired in his 40s doubled his portfolio during the 2008 housing market crash. He shares what he learned from investing in a downturn and four tips for investors heading into 2023. As you can see, you can achieve financial freedom with a spouse as a basic blue collar worker and by being daring of flocking into an asset class while everyone else is retreating. So how do you figure out cash flow on rental properties? Simply cash flow is income minus expenses. The main source of income is rent. This is the amount you charge a tenant to occupy the property on a monthly basis. Additional sources of income can include a pet fee, parking fee, or other miscellaneous items. The main contributors to expenses include the mortgage payment, property taxes, and insurance. Other expenses to consider include HOA dues, a property management fee if you don't manage a property yourself, utilities, maintenance, and vacancies. Here's an example document of an on-market listed property with a summary of cash flow and cash on cash return. There are some basic attributes of the home. It is a single family property that is located on 555 Main Street with the sale price at $220,000. The house was built in the 1960s. It has four beds and two baths as well as a garage which could possibly be converted as a room rental or house hacking. In the box on the lower right hand side, we can see cash flow summary. Yearly income and expenses are totaled. The difference between both is the net income. Based on the cash needed to close, our return would be 12.23% with a cash flow of about $500 a month which is great. Let's take a look at how the app we will build in this course will calculate cash flow. To dive into an example, we can go to any one of our favorite platforms to find properties either for sale or off market. In this case, I'm going to look at properties for sale and I'm using zillow.com. Here, I see there's a property for sale in Riverview, Florida. Riverview, Florida is a neighboring suburb of Tampa, the city. I'm going to copy this single address and bring it over into the app. Here, I can enter the property address and I need to enter in my API key. Once entered, I can hit get data and it's going to retrieve information on the property in merely seconds. We could see this property is listed at $300,000. It's estimated to rent at 2,400. By putting 20% down this property, we would have a negative cash on cash return. Our monthly cash flow would be negative $14. We could see on the right-hand side that we have the valuations, our property estimate and rent estimate. Rent estimate would be our income. Then below, we have expenses. This includes the payment, any closing costs, interest rate percentage, yearly insurance, taxes, repairs, property management percentage, expenses and vacancies, and additional expenses here too. What if we wanted to get this property to our target cash flow, which is $300 in this case? Well, we would need to raise the rent by $392. Because I'm local to the area, I know that it would be really hard to rent this property out for almost $400 more as a three-bedroom. But if we see here in the square footage, it's almost 1,800 square feet with three bedrooms. This means there's likely a dining room or a spare room that we can transform into an additional bedroom. If we were to do that, the rent would likely increase. Let's say a three-bedroom in this area rents for $2,700. We are confident that we can manage a property ourselves, so we don't need a property manager. We could have zero fee there. This now updates our REI metrics up top. We see our cash-on-cash return in this scenario would be positive at 8.4%. Our monthly cash flow would almost reach $500. We can also observe the breakdown between income, expenses, and look to see a visualization of where our expenses are going, fixed versus variable. We can also view the property via a map, look at the property description, look at additional information. Maybe if it was zoned for multifamily, we can add an additional unit and even download the property details into a CSV file. Within the course, you're actually going to create the same exact application so that you'll be able to analyze if a property has positive cash flow or not. You'll also be able to modify the parameters on the left-hand side so you could see if you tweak certain items, could a deal still work? All right, see you in the next lesson. Investors are tired of using spreadsheets to evaluate a real estate deal, but now they don't have to be. With the Property Cash Flow app, you can enter in a property address and within seconds have all the data at your fingertips. You get relevant metrics like cash flow, cash-on-cash return, and expenses, parameters you can toggle live to change your deal potential, graphics to see where income and expenses are flowing, and much more property details. What are you waiting for? Sign up for an API key and get started evaluating deals today or take the course to build your own Property Cash Flow app using Python.