What is Cash Flow in Real Estate? – Residual Income
Back to the basics. Real estate cash flow. What is it? is it important? should it factor into my decision making? Kris Krohn here with Limitless TV and today we’re covering the basics on understanding what real estate cashflow really is. Alright you did it. You put a smile on my face you requested a video that I kind of do want to make. The video today is on real estate cash flow. What is cash flow? It’s a big buzzword right? People talk about residual income, they talk about cash flow, well I want to actually define it and create clarity on what it looks like in real estate investing so that you can be smart. I can’t tell you how many, I cannot believe that people will go out of their way and do what I’m about to show you. Hey Kris I watched your video and guess what now I’m a real estate investor because I bought a house. Check it out the house is valued at $100,000 and I purchased it for $100,000 and my mortgage on this house is $600 and guess what? I rent it for six hundred and fifty dollars. I’m a real estate investor. You’re a nincompoop. This is not a good deal. There’s no equity, there’s $50. Kris $50 there’s a lot of money to be. No it’s not! Someone broke the window the baseball kid with the next door on the bat and then ouch. Guess what the window costs? $200. okay Rewind. Let’s talk about, let’s talk about real cashflow. Let’s talk about how to do real estate. Let’s talk about, let’s talk about, how to make this awesome. First of all, couple of rules do we got play. Number one, buy single family homes. Your cash flow sweet spot is not on condos it’s not on townhomes and it’s not on most duplexes because most duplexes do not get sold at a deal but single family homes that are entry level. I’m talking about 3 to 5 bedrooms and we’re talking two to three bathrooms. Okay this home if I were to draw you a curve and just talk about where you maximize your cash flow you got to check this out real quick. This line represents the value of a home and on this end this is a hundred thousand dollar home and on this end we have a million dollar home and then guess what? There’s a there’s market rental rates. For this home and that home. For example let’s plot a line. On a million dollar house my rent that I can collect my mortgage on a million dollars let’s call it as a, let’s just call it 10 grand but I can only rent for five thousand. So guess what? if you buy a million dollar house you are going to be underwater every month in this scenario by five thousand dollars. Opposite extreme right over here. I buy a house for a hundred thousand dollars. I have a six hundred dollar mortgage and I can rent it for $900 let’s just say. So this is a six hundred dollar mortgage and this is a $900 rent. See how above the line here let’s draw it like this, what essentially I’m telling you is that at some point we cross a barrier and when we cross it, you lose cash flow. You can’t get ahead the mortgage is too expensive. What is that number? In most cases it is somewhere ish right around $300,000. Hence, I don’t buy $300,000 homes. These are the homes to go underwater when the market takes. I don’t want to just teach you what is cash flow I wanna teach you how to maximize cash flow and you’re gonna maximize that cash flow in this sweet spot right here. It’s gonna be somewhere between a three and a five bedroom home and it is a single-family it’s not two bedrooms it’s not one bedrooms it’s right in that gap. Now by the way I could over here have a four hundred dollar cash flow but I have to pay more money for it. Down here $300 in cash flows bigger than four hundred because it took me less to get into it does that make sense? So I’m just talking about entry level nice single-family homes three to five bedrooms two to three bathrooms. And now let’s talk about this cash flow deal like so what is my cash flow? Let’s use this example. I bought a home it was valued at $100,000 and I’m able to purchase it for $70,000. This house right here I now have with after my down payment everything I may have a mortgage of $500 a month but I have a rent of $900 a month. The difference between all of my expenses minus my rent is my cash flow. I’m not the property manager. I hired a property manager. My property manager is taking $90. 10% of the gross. So there’s not a $400 difference now there is a three hundred and ten dollars and someone’s doing all the work. Now if you like me, I learned this lesson. If you want something done right don’t do it yourself personally, I would rather pay someone 90 dollars and have a smaller take home but do none of the work so my mind can be fresh to do what? do it again. If it works once why not do it 10 more times? why not do it 20 more times? This is the essence of what cash flow is. Now let’s break down how sweet this is. Let’s say that you have a job and that your job let’s say that you get paid $15 an hour. That’s what you are earning in the job market but your house is paying you three hundred and ten dollars every single month residually. How many 15 hours can I put at $15 an hour how many hours can I put into that three hundred and ten? Twenty point six hours. Instead of you getting a second job of it that’s an extra five hours a week, instead of you working in extra twenty hours a month, guess who is going to work every month at your income rate an extra twenty point six hours? No commute required. Your houses. Your real estate is. You’re like, oh my gosh this is so freakin amazing. I should go buy five of these houses. Five times 300 a month equals 1500. Guess what that is? that is 100 extra hours a month that you are not working. Your real estate now is going to work for you. Your real estate is making it happen like do you see how cool that is? Which brings up the point, how much real estate do I need to buy to not have to work? So that’s the question, how much real-estate do I need to buy to retire? That’s a good question. My wife and I when we designed our number originally it was ten thousand a month. We said I could quit my job if I had ten thousand a month coming in. So I started doing deals where I was making three hundred cash flow here five hundred cash flow here two hundred cash flow here four hundred cash flow there and eventually it got up to over ten thousand dollars a month. In fact when it hit 12,000 a month, I quit my job. So you get to start thinking right now, now’s the time to make a goal and by the way if this is your retirement on line, then you got to get seriously get a serious education. Don’t mess around. You do one deal wrong you can bet and risk and lose the entire farm. You might have 401ks or IRAs or you might be like me starting with nothing but getting the right education and having the right team is going to make it happen with time. In fact, you can click the form below and ask for my next limitless wealth intensive. Come and spend three days with me and my team and let’s talk to you about the education that you need to actually get going and doing real estate wherever you’re at. You got no money and no credit? You can do a deal right now. If you got lots of money, and lots of credit, you can do a deal right now. In fact it doesn’t matter what your resources are you can do a deal right now. Now that you’ve got great clarity on real estate cash flow come spend a couple of days. Meet me and my team. The first thing you’re gonna say is whoa Kris you’re so big. You’re so much bigger than on the small screen. Well yes I am. And me and my team are gonna sit down and we’re gonna expose you to the different type of real estate options, investments, mindset training, to help you take your next step forward in life. Be sure to subscribe, click the links below, learn more about what we’re up to and we’ll keep on helping you.