Welcome to this 4-part series on building wealth through real estate investment! In this series, we’ll explore the four key ways rental properties can help you grow your wealth: cash flow, debt paydown, appreciation, and tax benefits. When done correctly, real estate is a powerful tool for diversifying your retirement portfolio. Plus, with four distinct ways to make money, real estate offers its own form of diversification. To kick things off, we’ll dive into the first “pillar” of real estate investing: Cash Flow.
When it comes to real estate investing, cash flow is one of the most essential pillars. It’s what keeps you in the game and helps provide financial stability. Cash flow is essentially the monthly or annual income generated from your rental property, after you’ve accounted for all expenses.
Let’s break down how this works with a real example. Suppose you have a property with a gross rental income of $27,000 annually. However, there are always factors that can affect this amount, like vacancy, which might cost you about $1,890 for the year. This leaves you with a net rental income of $25,110.
From here, you need to account for ongoing expenses, such as property management, maintenance, utilities, property taxes, and insurance. You’ll also need to for save for capital expenditures, such as replacing the HVAC system or roof. Let’s say these expenses total $10,700 annually. Your Net Operating Income (NOI) after expenses would be $14,410.
Now, if you have a mortgage on the property, you’ll need to subtract that as well. Assuming your mortgage costs $13,080 annually, your cash flow is $1,330 for the year, or about $110.83 per month. While this may not seem like a large sum, remember, this is just one of the 4 ways you’re making money investing in real estate. Plus, as you acquire more properties and reinvest your cash flow, this number can compound and significantly contribute to your long-term wealth.
The Takeaway
Cash flow is crucial, but it’s just one part of the equation. It provides a steady income stream and can be reinvested to accelerate growth, making it an essential component of a balanced real estate investment strategy.
In our next article, The 4 Pillars of Real Estate Wealth: Debt Paydown, we will discuss how to amplify your returns using leverage.
If you’re interested if real estate investing is right for you, I’d love to review your options with you. Call anytime!
Justin Rollheiser – REALTOR®
Keller Williams Realty | Diamond Partners Inc
13671 S Mur-Len Rd | Olathe, KS 66062
Direct 913-800-7653
Office 913-322-5878
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