Real estate investing can either be a full time career or a business that is done on the side as a part time job. How much time you are willing to invest and how much profit you are looking to make is dependent on any number of factors. Some may be willing to get their feet wet in the real estate pool, while others are ready and willing to dive head first straight into the deep end. Either way, their goals are the same. They want to make a profit and maintain a positive cash flow.
Positive cash flow really needs no clarification as to what it is. Basically, it is the money left in your pocket or your bank account at the end of the day. One way to look at managing and maintaining a positive cash flow is by applying principles similar to those required in managing your bank accounts. Just as with any bank account, the goal is to never be at a negative level or 'in the red.' This is also true with managing and maintaining funds required for investing in real estate. For example, the net spendable cash that remains after the costs of maintenance have been taken care of, income taxes on the earnings of the property have been paid, and other expenditures have been deducted, the end result is your ultimate goal which is a positive cash flow. It is like your checking account. The cash that comes in less the cash that goes out equals the cash flow. It is accounted for on a more consistent and short term basis, usually daily, weekly, or monthly.
On the long term profit agenda is the overall appreciation of the property, especially if the property is rented or leased for a number of years. The cash flow to be acquired from a long term commitment to a real estate investment can be compared to your savings account. The appreciation or growth in value of a property over time is the basic goal of the original investment. Positive cash flow and the overall appreciation in value can be calculated by estimating the future re-sale price of the property and deducting the original price it was purchased for. This tactic is works well if an investor is not in desperate need to sell the home for a quick profit and is willing to hold on to it and sell it at a future time, when the real estate market and the general economy is thriving.
Property appreciation is partially dependent on the state of the current economy and its rate of inflation. Changing market conditions play a major role is defining what homes and properties will sell for and also determine the rate at which a real estate investment will increase or not. Other factors that contribute to the appreciation of a property are the conditions of the areas in which they are located in. For example, a once neighborhood once considered 'shady' or 'a bad part of town' may undergo major renovations which will heighten its status within the community and make it a more desirable location for prospective home buyers to want to live in.
Cosmetic repairs made to a property such as painting and gardening, which would increasing its curb appeal, will also make more buyers take notice to a home that may have been once overlooked and attract better tenants. Parks, new schools, recreational centers, museums, and restaurants are all areas that can shed new light on a once dismal location.
The positive cash flow that can be expected is calculated by adding up all of the funds that are received from the property, such as rent or profits made from sales, and then subtracting any funds that have been accrued as a result of the initial purchase, maintenance, and repairs to be made to the property, within a given period of time. Estimated cash inflows, or positive monies applicable are included as a part of the equation whether they are or are not counted as income that is taxable. These funds include rents received, interest accrued from any bank accounts, and proceeds received from re-financing or future loans acquired.
Another area to consider is what funds actually define a cash flow and how a positive one is determined. Generally, cash flow before taxes (CFBT) involves all money invested not including any tax liability that the homeowner will incur as a result of the purchase of the home. On the other hand, cash flow after taxes (CFAT) is the remaining amount of money after any tax liabilities that have been acquired for the maintenance and operation of the property have been subtracted.
Any cash outflow amounts are also factored in, even if the money is considered nondeductible, such as with the interest amount paid monthly on an existing mortgage. These funds include payments made on any existing debts, expenses for upkeep and repairs that would maintain the value of the property, and any capital additions made that would increase the longevity of the property on more of a long term basis.
Overall, whether you are a seasoned investor with many years of experience and several deals under your belt or a relatively 'green' but enthusiastic budding entrepreneur, your goals are most likely very similar in theory. Find the deals, close the deals, and make a profit. Creating a positive cash flow through investing in real estate is one of the quickest and easiest ways to increase your wealth, ensure your prosperity, and achieve your financial freedom.
Jeff Adams is a full time investor who has done over 350 deals and is a leading expert in the buying and selling of real estate. For more information visit http://www.FreeForeclosureCourse.com or sign up for a free seven day e-course at http://www.RealEstateWebProfits.com.
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