{"id":89817,"date":"2019-12-05T17:00:11","date_gmt":"2019-12-06T00:00:11","guid":{"rendered":"https:\/\/www.biggerpockets.com\/renewsblog\/?p=89817"},"modified":"2024-02-19T08:00:23","modified_gmt":"2024-02-19T15:00:23","slug":"how-much-cash-flow-is-enough","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/how-much-cash-flow-is-enough","title":{"rendered":"When It Comes to Your Rental Portfolio, How Much Cash Flow Is Enough?"},"content":{"rendered":"\n\n      <iframe loading=\"lazy\" frameborder=\"0\" height=\"200\" scrolling=\"no\" src=\"https:\/\/playlist.megaphone.fm?e=BIGPOC1279217331&#038;light=false\" width=\"100%\"><\/iframe>  \n\n\n\n<p><span style=\"font-weight: 400;\">\u201cCash flow\u201d is a term that comes up in most conversations on real estate investing\u2014and for good reason. As a <a href=\"https:\/\/www.biggerpockets.com\/blog\/2016\/07\/30\/how-to-be-a-landlord\/\" target=\"_blank\" rel=\"noopener noreferrer\">landlord<\/a>, if the rent you charge is significantly higher than your expenses, that difference can not only help you build wealth but can also serve as a potential cash cushion, there to soften the blow when you have too many vacancies or when the unexpected happens and you need reserves. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">And the unexpected <\/span><i><span style=\"font-weight: 400;\">will<\/span><\/i><span style=\"font-weight: 400;\"> happen, eventually. It could be anything from an old roof needing to be replaced to termite damage or even a bridge being built over your property. (Ask me how I know.)<\/span><\/p>\n<p><span style=\"font-weight: 400;\">After 30 years of investing in real estate, I can assure you that I have no shortage of bizarre landlord stories.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">In those tough situations, many real estate investors tap into whatever access to capital they have, whether it be reserves, lines of credit, or even their network of <a href=\"https:\/\/www.biggerpockets.com\/blog\/find-private-money-lenders\" target=\"_blank\" rel=\"noopener noreferrer\">private lenders<\/a>. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">Even so, the conversation is mixed on how much cash flow is necessary to provide that \u201ccushion\u201d and how much is needed to help the investor grow his\/her portfolio.<\/span><\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-86284\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2017\/02\/organizedocs.jpg\" alt=\"\" width=\"702\" height=\"336\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2017\/02\/organizedocs.jpg 702w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2017\/02\/organizedocs-300x144.jpg 300w\" sizes=\"auto, (max-width: 702px) 100vw, 702px\" \/><\/p>\n<p><em><strong>Related:<\/strong> <a href=\"\/renewsblog\/2016\/07\/08\/secret-building-wealth-real-estate-successful-understand-and-newbies\/\" target=\"_blank\" rel=\"noopener noreferrer\">The Secret the Rich Understand About Building Wealth (And No, It\u2019s Not All About Cash Flow)<\/a><\/em><\/p>\n<h2>How Much Cash Flow Is Enough?<\/h2>\n<p><span style=\"font-weight: 400;\">Personally, I\u2019ve always had the mindset that <\/span><i><span style=\"font-weight: 400;\">cash flow is king<\/span><\/i><span style=\"font-weight: 400;\">. When I began investing in real estate, I had a wife and two young children to support, and I was in search of more income.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Over the years, my sweet spot for minimum cash flow was about $300 to $400, but I must say that this goal hasn\u2019t been attainable for every single property. Some properties have brought in less, while others have brought in much more. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">For example, I have one property right now that cash flows $100 a month, and I hate it, but that\u2019s just the way it shook out. I have quite a bit of equity in it, but the house isn\u2019t worth much. The other extreme is that I have a property that cash flows $1,600 a month (never underestimate the power of improving a property for highest and best use). \u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">So, instead of focusing on single properties, I started to look at my real estate portfolio in its entirety, and I think this is a practice investors of all experience levels would benefit from. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">What is the average cash flow? What is your average cost of capital for all your properties?<\/span><\/p>\n<p><span style=\"font-weight: 400;\">For some investors,<\/span><span style=\"font-weight: 400;\"> though,<\/span> <span style=\"font-weight: 400;\">increasing <\/span><span style=\"font-weight: 400;\">cash flow is less of<\/span><span style=\"font-weight: 400;\"> a priority compared to some of their other investing goals. <\/span><\/p>\n<h2>Investing Goals &amp; Tax Implications<\/h2>\n<p><span style=\"font-weight: 400;\">Investors who are already high income earners may be looking for <a href=\"\/renewsblog\/2015\/05\/20\/tax-benefits-real-estate-investing-rental-properties\/\" target=\"_blank\" rel=\"noopener noreferrer\">tax write-offs<\/a> and losses to offset earned income. In other words, having more cash flow (income) may not serve you in certain phases of your life from a taxation perspective. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">Maybe before you invest in your next property you should ask your accountant about how much cash flow you can add without significantly increasing your taxes.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Other investors may be more interested in long-term capital gains and appreciation. My point is that getting more cash flow isn\u2019t the goal for all real estate investors.<\/span><\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-84976\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2014\/10\/buy-and-hold-1.jpg\" alt=\"buy-and-hold\" width=\"702\" height=\"335\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2014\/10\/buy-and-hold-1.jpg 702w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2014\/10\/buy-and-hold-1-300x143.jpg 300w\" sizes=\"auto, (max-width: 702px) 100vw, 702px\" \/><\/p>\n<h2>Ways to Increase Cash Flow<\/h2>\n<p><span style=\"font-weight: 400;\">But if you&#8217;re like me, always looking to increase cash flow, there are a few ways to do it. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">Of course, pursuing highest and best use of the property by making improvements is a common way to increase rent. But if you\u2019re investing in higher-end properties with less room for improvement, this can be tough. After all, the more the property is worth, the more cash flow you need. <\/span><\/p>\n<p><em><strong>Related:<\/strong> <a href=\"\/renewsblog\/hidden-cash-flow-killer\" target=\"_blank\" rel=\"noopener noreferrer\">The Hidden Cash Flow Killer Most Rental Owners Don\u2019t Consider<\/a><\/em><\/p>\n<p><span style=\"font-weight: 400;\">Another strategy is classic arbitrage: tapping into your equity in the property and investing that money somewhere else, making a higher return than your interest rate. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">Undoubtedly, understanding <a href=\"https:\/\/www.biggerpockets.com\/blog\/rental-property-cash-flow-analysis\" target=\"_blank\" rel=\"noopener\">how to calculate cash flow<\/a> played a crucial role in constructing and maintaining my real estate portfolio. Reflecting on my experience, I realize that integrating a focus on cash flow with strategies like arbitrage and tax-saving techniques, such as utilizing passive losses, accelerated my wealth-building journey.<\/span><\/p>\n<p><a href=\"https:\/\/www.biggerpockets.com\/real-estate-investment-calculator?utm_source=renewsblog\" target=\"_blank\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-91220\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2017\/08\/blog_ads-02.jpg\" alt=\"\" width=\"700\" height=\"85\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2017\/08\/blog_ads-02.jpg 700w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2017\/08\/blog_ads-02-300x36.jpg 300w\" sizes=\"auto, (max-width: 700px) 100vw, 700px\" \/><\/a><\/p>\n<p><em><span style=\"font-weight: 400;\">How important is cash flow to you, and how much is \u201cenough&#8221;? What other strategies are you using to build and preserve wealth?<\/span><\/em><\/p>\n<p><strong>Weigh in below!<\/strong><\/p>","protected":false},"excerpt":{"rendered":"<p>The conversation is mixed on how much cash flow is necessary to provide that \u201ccushion\u201d and how much is needed to help the investor grow his\/her portfolio.<\/p>\n","protected":false},"author":807,"featured_media":119886,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[4241],"tags":[],"class_list":["post-89817","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-real-estate-business-management"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/89817","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/807"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=89817"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/89817\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/119886"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=89817"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=89817"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=89817"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}