The days of buy, fix, and flip are over with for the most part.  In these times of few buyers, high foreclosures, and surplus of properties, the market is in the perfect condition for investors to cash flow their way to wealth.  Rental prices are holding steady and in some markets increasing.  This provides the perfect storm for real estate investors to create cash flow off of their properties through rentals or seller financing. 

To begin with, what is cash flow?  Cash flow is the sum of the after-tax profit of a business plus depreciation and other non-cash charges.  This is the money you make minus expenses.  Once expenses are paid and you still have funds left over, this is positive cash flow.  If your rental income doesn’t cover your expenses for the year, this is negative cash flow.  NEVER buy a property where there is negative cash flow!

In order to cash flow your property, you must first buy the property right.  If you are buying a property using financing, you want to be sure that your monthly property income is greater than the monthly expenses, including finance payments, interest, taxes, insurance, and management.  Before a property is purchased, much due diligence is required to assure investors that the property will cash flow well. 

Another key factor in being sure that your property will cash flow is property management.  This is where a number of investors encounter problems because great property management is hard to find.  A property management company will normally charge around 10% of the rental amount.  Some investors like to manage their own property, but to me this is not the best use of an investor’s time.  Be sure to check the management company’s reference and ask them questions.  Also be sure that the company has some insurance. 

If your property is a 2 or more units, you can be sure each unit has it’s own meter box so that the tenants will be responsible for their own water and power.  This will decrease your monthly expenses therefore increasing your cash flow.  Also extras such as a washer/dryer, dishwasher, microwave, etc. can yield a higher rent. 

I just want to point out that you can also increase your monthly cash flow by selling your property with owner financing vs. renting it out.  This will allow you to pass all expenses on to the tenant/buyer including taxes, insurance, and repairs.  For a home that you would normally get $600/mo for rent, you can get the same $600/mo without paying for taxes, insurance, repairs, etc.  This yields more cash flow for the investor.

Cash flow, over time creates a substantial amount of income.  If you have 10 properties that cash flow $200/mo each.  That is $2,000/mo total and $24,000/yr.  Not to mention that your loan is getting paid down and property values will go up over time.  This is a small scale example.  I have partners that are cash flowing $300/mo on 50 or more properties.  This is extreme cash flow and can create wealth through real estate quickly.  This is the perfect storm for investors, take advantage of the market now.