How Cash Flow Investing Works?

cash flow investing

If you have a strong cash reserve and want to build a more diversified investment portfolio, why don’t you look into investing for cash flow? There are literally thousands of ways to generate more cash flow. A few of them are real estate, peer to peer lending and dividend stocks. It is true, yes, investing is a great way to save for retirement, but you can also turn investing into a lucrative side hustle. Just keep one thing in mind. Before you start putting your cash to work, make sure you understand the why’s and how’s of your specific investment.

 

When you invest for cash flow, such as via a rental property, you may receive an immediate return depending on how the numbers shake out. Cash is technically the difference in the amount of income and the aggregate expenses each month from an investment.  But it can go both ways and give you a loss.

 

For example. If you earn rent of $1000 and have expenses for $500 in a month, your cash flow is $500. But, if you earn $1000 and have expense $1300 in a month, then your cash flow is -$300.

 

When you invest for appreciation in real estate, you choose a property that you think will increase in value over time. However, your money is tied up in the investment until it sells. The only time you receive cash flow from the property is when the income doesn’t exceed the expenses incurred.

 

Cash flows from investing refers to the cash spent on items to be used over the years, so the business may be able to increase efficiency or profitability while the different types of investments provide a source for cash inflows and outflows.

 

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Cash is the lifeblood of any business and is always short of supply. For this reason, you need to manage your cash flow to ensure you get the maximum benefit out of it and grow your business. Just so you are aware, cash flow allows you to make decisions with your time now.

 

Now, let us go to the next level. When you invest in a real estate, your goal is to put money to work today and make it grow so you have more money in the future. One thing to keep you safe when you consider buying real estate is to know how to keep your downpayment money safe and easily accessible.

 

You should almost never, under any condition, own a real estate investment directly in your own name. Serious real estate investors own properties through their limited liability company or LLC.

 

This protects your personal assets from lawsuits and other dangers. As a potential new real estate investor, it is imperative that you understand how LLCs work and why you may want to use them to hold your rental properties or other real estate investments.

 

When approached correctly, real estate can be a lucrative and reliable way to generate substantial returns. Real estate can create a consistent income stream while supplementing your portfolio with unique benefits.

 

house flipping

 

 

House flipping

House flipping is the most active, hands on way to invest in a real estate. In a house flip, an investor purchases a home, makes changes and renovations to improve its value on the market, and then sells it at a higher price.

 

House flipping is generally short term, because the longer the investor owns the home without leasing it to tenants, the more their expenses add up. This eats away returns when they sell it.

 

Investors can repair or renovate the home to increase its sale price or sell when its value in the housing market increases. While house flipping is exciting, it also requires deep financial and real estate knowledge to ensure that you can make over the home within the preset time and budget.

 

The success and the financial burden of a house flip falls entirely on the investor. You need enough cash for a down payment or a good credit to secure a home loan so you are able to buy the property first before the other interested flippers.

 

 

Wholesaling

Another kind of property flipping option is the wholesaling. Wholesaling is when an investor signs a contract to buy a property that they believe is underpriced and then sells it quickly to another investor at a higher price for a profit.

 

Most often, wholesalers seek out properties in need of renovations and then sell them to house flippers who are willing to perform the renovations. An investor will sign a contract to buy a property and put down an earnest money deposit.

 

The investor will then try to sell the home to a house flipper at a premium, earning a small profit. Essentially, a wholesaler gets a finder’s fee for brokering a home sale to a house flipper.

 

A wholesaler normally uses the position as a homebuyer so he can broker the deal. Wholesaling requires access to a network of house flippers in order to find a buyer within a time frame to sell at a profitable price. Otherwise, you risk not earning a profit or losing money.

 

Investing Through Wholesaling

 

 

Rental properties

This long term type of investment requires a hands on management. The property owner earns regular cash flow usually on a monthly basis in the form of rental payment from tenants, but can be a lot of work in terms of delegation and keeping the operations running smoothly.

 

 

AirBNB

Rent out rooms or homes on a nightly basis. AirBNB allows you to rent out a portion of your home or your entire home. Property owners earn money by renting their property by the night, which provides a regular or irregular cash flow.

 

 

How this works?

Don’t speculate and based your investment on cash flow. Don’t over improve your first flip. If you are buying to resell, look at what is working best in the neighborhood where you sell a property and then, use the information as your guide.

 

Be realistic in cost, your expected return and holding timeframe. Find an expert to be your trusted advisor that is local in the area and of course, who doesn’t have a stake in the deal.

 

Always establish the amount of money you are willing to pay before looking and deciding on the best place to buy. Sticking to a budget is key for an investment.

 

Start small. Find a property that is easy to manage and has low operating costs. Learn the market you want to invest in. Know the market values better than anyone.

 



 

Connect with investor groups. Real estate is local, so focus on people with knowledge on your market. The top 10 cities states to flip a house are

Tennessee

Average house listing price: $268,692

Average time to flip: 147 days

Average profit: $57,600

Average ROI: 132.7 percent

 

Pennsylvania

Average house listing price: $224,090

Average time to flip: 199 days

Average profit: $105,190

Average ROI: 162.4 percent

 

New Jersey

Average house listing price: $372,916

Average time to flip: 207 days

Average profit: $102,300

Average ROI: 141.6 percent

 

Lousiana

Average house listing price: $232,610

Average time to flip: 166 days

Average profit: $71,866

Average ROI: 104.2 percent

 

Colorado

Average house listing price: $538,477

Average time to flip: 176 days

Average profit: $74,300

Average ROI: 155.6 percent

 

Maryland

Average house listing price: $369,454

Average time to flip: 198 days

Average profit: $109,617

Average ROI: 109.6 percent

 

Virginia

Average house listing price: $341,015

Average time to flip: 184 days

Average profit: $91,783

Average ROI: 99.3 percent

 

Florida

Average house listing price: $406,803

Average time to flip: 151 days

Average profit: $59,917

Average ROI: 83 percent

 

Illinois

Average house listing price: $277,163

Average time to flip: 196 days

Average profit: $77,317

Average ROI: 110 percent

 

Kentucky

Average house listing price: $213,848

Average time to flip: 172 days

Average profit: $55,241

Average ROI: 107.8 percent

 




 

States with faster average flip times also rank higher because “the sooner you can get your money out of one flip, the sooner you can reinvest it in another house.”

 

Among the top 10 states, the average flip time is 180 days, the study notes. Among the bottom 10, it takes 203 days, or over three weeks more per flip.

 

Every day counts since “if you’re borrowing the money to buy each house you flip, that’s 23 more days of interest you have to pay on potentially a few hundred thousand dollars.”

 

So, if you’re looking to flip a house, it’s best to do your research first. Knowing where to buy and sell can help you make the most of your investment.

 

4 cities where flipping activity is low based from WalletHub metrics as of 2017

El Paso, TX – Highest overall score of 69.6 based on all metrics

Sioux Falls, SD – Second highest overall score of 69.5

Fort Wayne, IN – Third highest overall score of 67.3

Peoria, AZ – Fourth highest overall score of 66.6

 

7 cities with higher inventory based from Realtor.com annual survey 2018

Stockton, CA – Sales growth of more than 4.5% and price growth near 6.5%

Lakeland, FL – Sales growth of 3% and price growth at 7%

Salt Lake City, UT – Sales growth over 4.6% and price growth at 4.5%

Charlotte, NC – Sales growth nearing 6% and price growth just above 3%

Colorado Springs, CO – Sales growth is at 3.1% and price growth over 5.6%

Nashville, TN – Sales growth at just 1% but price growth surpassing 7.6%

Tulsa, OK – Sales growth above 7.5% but price growth hovering at 1%

 

3 cities where distressed discounts are still deep, according to February 2018 Housing News Report by ATTOM Data Solutions

Scranton, PA – 61% average discount off market value

Utica, NY – 57% average discount off market value

Columbus, GA – 52% average discount off market value

 

5 best cities for flipping houses

New haven Milford, CT – ROI of 89.6%, house flippers in this area purchase properties at 38.1% less than local market prices, and buyers are willing to pay a premium of 20.7%

Cincinnati, OH – average home value is $152,100 compared to the national average of $181,200

Philadelphia, PA – home buyers are willing to buy the flipped home at a 5% premium, so flippers are able to make double their investment

New Orleans, LA – the average gross profit is $74,700, with a return on investment of 99.2%

Pittsburgh, PA – the average return is a whopping 130%, making Pittsburgh the most profitable house flipping area in the U.S. metro area because the median purchase price in the city is $55,000

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