7 Reasons Why Cash Flow is Important When You’re Investing in Real Estate

Posted on January 25, 2021 by Trevor Shakiba

As an investor, your goal is to make money. You need to know that you’re getting back what you put in so you can make a profit. While real estate can be a profitable investment, having consistent cash flow is just as important. Here are some of the reasons why this is true.

#1: You’re Not Trapped by Your Investments

You might be wondering how an investment can trap you, but a lot of people invest in properties that force them to pay out-of-pocket just to keep them going. This type of situation would be fine if you have a high-paying job. But if you want to leave it so you can start a new life, you might not be able to afford the mortgage.

Because you’re spreading your finances thin by making payments toward the property, you won’t have as many options. And even if you’re financially stable and have a great job, what will happen if the economy changes or you decide you no longer want to work in your current profession?

Investments can trap you. But if they’re generating cash flow, you won’t feel as stuck because they pay for themselves. It will actually give you extra money and the freedom to decide what you want to do with your time. If the property is taking care of itself and is making you money, it will help you fund whatever you want to do in the future.

#2: You Can Afford to Make Additional Investments

Not everyone makes a lot of money. We all have to pay for food, rent, and other life expenses. All of these costs are necessary, and they can add up. Investing in real estate that’s generating cash flow will not only give you some extra cash but can also give you the ability to make additional investments.

#3: You Need Cash to Expand Your Investment Portfolio

The more you expand your investment portfolio, the more likely you are to take on more debt and financial responsibility. If you have cash flow to back up your initial investment or have properties that are generating cash flow, you may have what you need to expand your portfolio and get exponential returns on your investments.

#4: It’s Good for Contingency Purposes

If you have cash flow that’s coming in on a regular basis, you can put some of it aside to use in emergency situations. By having steady cash flow and a good emergency fund saved up, you’re better prepared to take care of any unplanned expenses.

#5: You Can Start Seeing Benefits Sooner

Not everyone wants to invest in an asset where they only see the benefits when they turn 65 or whenever they can claim the money. You want to reap your rewards sooner. And if you have cash flow, you can decide to access these benefits at a much earlier time.

For a property that’s negatively geared, you won’t see any benefits because you’re paying money to keep it going. The only way you can make a profit is to sell it, which may not be the best long-term strategy. But if you have passive income from cash flow, you can reap the benefits sooner by putting the money toward improving your lifestyle.

#6: Someone Else Can Pay Off Your Mortgage

With positive cash flow, you can have someone else pay off your mortgage instead of paying it off yourself. Rental income can cover all your expenses, including any interest repayments. And on top of that, you’ll be able to generate a passive income that you can put toward your mortgage. You can also wait until your rental income increases before switching from an interest-only loan to a principal-and-interest loan, so you can use that money to pay off the property.

#7: You Can Achieve Financial Freedom

Many people decide to invest without having a financial plan. They have no clear reason why they want to invest, except that they hate their jobs or don’t want to work anymore. They have no clear goals they want to achieve. Financial freedom is a great goal. And when you have passive income coming in, you can spend more time in your daily life. You will no longer be dependent on a job or wage, so you can have the freedom to do what you want with your time.

By having properties that bring in steady cash flow, you’ll be able to generate passive income that can help you to achieve financial freedom. A lot of investors have a mix of properties. Some of them are negatively geared, while others are positively geared. They may even have all negatively geared properties, so they can accumulate a massive portfolio that will increase in value over time.

They can sell off a couple of properties and use the equity to pay down any debts on properties they have kept. By using the money they’ve earned to pay off the mortgage, they can use these negatively geared properties to generate positive cash flow. Eventually, they can use those properties to fund their lifestyles and achieve financial freedom.

For more information about how you can invest in real estate to generate positive cash flow, be sure to get in touch with Trevor Shakiba at Shakiba Capital.