Real Estate Investors: Stay Afloat With Cash Flow

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I am currently studying to get my scuba diving certification through PADI and as part of that process have learned more about the physics of buoyancy. Divers use a BCD (buoyancy control device) to control their depth when diving. The cylinders that scuba divers wear on their back supply oxygen to the diver for breathing, but also to the BCD which adjusts buoyancy to help the diver control their distance from the surface.

In real estate investing, positive cash flow is what allows us to breathe, but is also what provides us with buoyancy and allows us to stay afloat when times are tough.

Divers Need Oxygen, Investors Need Cash Flow

Divers are able to take incredible underwater journeys because of the ability to take oxygen along with them but without that oxygen are required to resurface each time they need a breath. With real estate investing, cash flow allows investors to stick to a longer term plan without worrying about temporary swings in the market. Running out of oxygen is a risk to the scuba diver, and running at negative cash flow is a risk to the real estate investor.

Keep Calm & Carry On

Just as a shortage of oxygen at depth can lead to panic for a scuba diver, a shortage of cash flow can wreak havoc for the real estate investor. When a property is operating at negative cash flow, it must be fed every month and owning too many properties like this can spell disaster. With strong positive cash flow, it is far easier to remain calm and stick to your plan.

Weathering the Storm

Perhaps one of the greatest risks to the real estate investor is being forced to sell during a down market. Although real estate is typically a fairly stable investment, there are periods that exhibit short term swings or price corrections where you could lose money by selling at the bottom of the market. The good news is that as long as you keep paying your bills, nobody is going to force you to sell at a loss. Strong cash flow ensures you can weather the storm by continuing to pay your bills during a market downturn. This allows you to stick to a longer term plan and not react emotionally or become a motivated vendor because you’ve run out of money.

Always invest for strong cash flow so you can remain calm and weather the economic storms that come and pass as surely as night follows day.

photo credit: star5112

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.