Cash flow is essential to any business. It is the difference between the money coming in and the money going out.
That said, there are many ways to generate cash flow in real estate. First, let’s discuss what cash flow is, and what it comprises.
Cash flow in real estate is the amount of profit you bring after expenses.
The activities that generate cash inflows and outflows are in one of three different categories: operating activities, investing activities, and financing activities.
In each of these categories, there are ways to increase cash flow in real estate.
Operating activities are how a company runs its day-to-day business. In real estate, it includes things like property maintenance, utilities, property management fees, building improvements, taxes, insurance, paying salaries, and incoming rent.
There are many operating activities that create unnecessary deductions from cash flow, like:
These might all negatively impact cash flow, and some can’t be avoided, but there are ways to leverage operating activities for a potential increase in cash flow. For example:
So, you can see, there are many ways to potentially generate cash flow in real estate with operating activities. If you inspect your current operating costs and see where there is potential for changes that is a good first start.
There are different real estate investing methods that might help you create high cash flow real estate.
Leveraging Your Investment
One example of increasing cash flow in real estate is with a Delaware Statutory Trust (DST). Using a DST, you can take equity from a property you own and use it to purchase a replacement like-kind property. In turn, the capital gains taxes on the sale will be deferred. You can then leverage the tax-deferred funds and use them to invest in higher cash flow real estate.
Buy Positive Cash Flow Investments
Above, we discussed how you could use a DST to leverage the cash from buying an exchange investment property to buy a higher cash flow investment. But, how can you figure out if a real estate investment has the potential to be cash-flow positive? What might make a property a good investment? Let’s discuss.
Keeping these factors in mind can help you focus on investing in properties with potential for gains, and less risk.
Financing activities encompass how an investor raises funds to run the company. This can include debt, equity and dividends. This is a much more complex topic, but there are ways to leverage financing activities for the potential to increase cash flow.
Negative cash flow investing activities include, but are not limited to:
There are also financing activities that might create high cash flow in real estate. Some examples include:
No matter how you do it, there is always upside to increasing cash flow in real estate. And, when you generate more cash flow there might be more opportunities for investing and growing your portfolio.