Should Long Term Real Estate Investors Focus On Cash Flow or Growth?


This is a long-running debate and both sides have legitimate points. The fact of the matter is, long term real estate investors are long-term thinkers and planners. They look into the future but always factor in the present and short term. Still, the question remains, should long term real estate investors focus on cash flow or growth?

Should Long Term Real Estate Investors Focus On Cash Flow or Growth?

To answer this question, it’s best to first define what the two terms mean. Cash flow, of course, is the net money gained or lost on a monthly basis. One mistake many rental property owners make all too often is believing just because the rental charge covers the mortgage expense, they are “making money.” However, that’s simply not the case. The rental income must not only cover the home loan payment, but also, the property taxes, insurance, and other carrying costs.

As for investors who buy real estate to rehab and flip, underestimating the costs of renovation causes undue financial strain. It not only causes many to hold longer than they first intended, it also puts them in a anxious position.

Growth is the amount of properties owned, free and clear of mortgages. In order to obtain this goal, some real estate investors will leverage one or more properties in order to purchase another. While this is possible, it is a precarious method for growing a real estate portfolio. This is because, with every new property, the owner is more financially exposed. It also puts their primary residence at risk.

All of this means it is a more sound approach to improve cash flow, starting with one property. When the mortgage is amortized, the cash flow will rise significantly and allow the owner to purchase another property.

After buying another rental house, focus on paying off the home loan as quickly as possible. Once the mortgage is fully amortized, cash flow will be substantial. In fact, cash flow will be large enough to save enough cash to buy yet another property outright.

By following this methodology, both goals are obtainable. You’ll receive a healthy cash flow and continue to grow your real estate portfolio.

Keep in mind, you should not put your primary residence at risk to obtain more investment rental properties or to buy houses to flip. If you take a smart approach, be patient, and take your time, you’ll make better decisions. This way, you’ll enjoy a nice cash flow as well as grow your number of propertes. For help with Texas Real Estate Loans, please contact us at http://proactivelendinggroup.com

Comments

  1. UnknownApril 9, 2020 at 9:07 AM

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