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
{ 7 comments… read them below or add one }
Cash is king and those with it will dominate when values turn back up. This is the best time to purchase as many properties as possible. There has been no better time to buy. You know what they say…buy low and sell high. Those with cash can pick up great properties for nothing. They can cash flow on their money and pick up a lot of equity in the future. Thumbs up to those with cash. Buy as much as you can because this won’t last long.
Hi Kyle,
I think there is still some more turmoil coming down the pipe for the US housing market, so the best time to buy may still be 2-3 years out. With regards to cash flow – as long as you have it and can whether the storm, now is still a good time to buy because in the long run you’ll have bought NEAR the bottom of the dip.
Cheers,
Andrew
So true! Anybody with even a moderate stack of cash is grinning like crazy right now. It’s a great market for investors.
Hi MH,
It hurts to see depressed values in your portfolio, but anyone in it for the long term who has cash flow knows things will turn around.
Cheers,
Andrew
Cash flow is what I need right now! Fortunately my son is now done with college, and all those payments are done. Once we cover a few more costs, I would love to get more involved with real estate investing. As a Realtor myself, I see so many opportunities for investing coming up.
Hi Lydia,
If you can funnel your excess cash flow into real estate investments over the next 2-3 years you’ll likely get in during one of the best buying windows in recent times. As a Realtor you’ll come across some of the best deals.
Cheers,
Andrew
Great article, Andrew. After studying macro-economics at the University of Tennessee, I decided to enter the world of real estate investing myself. I was able to make several deals through purchasing mortgage notes that provide me with positive cash flow every month. When the stock market crashed in ’08 and most investors lost more than half of their net worth, my investments were on their usual schedule. If people understood how to invest for cash flow purposes, our economy would be much better off! I discuss this in more detail on my blog, . I would love to hear your insights.