how does cash flow increase BEFORE paying off loan?

[John LaMedica]

In the BP vid below, Brandon is analyzing a rental property for cash flow and says that his cash flow will go from an initial $1200 to $1500 by year five, then to $2000, then jumps to $9.5k once the loan is paid off. Can someone help me understand what causes the cash flow to increase BEFORE the loan is paid off? 

He did estimate that his income would increase by 1% per year, but that's only an extra ~$20/year, or an extra ~$80/year by year five, so that alone cannot account for the $300 increase in cash flow achieved (i.e. from $1200 to $1500), esp. since he estimated that his expenses would ALSO increase by 1% per year. 

 https://www.youtube.com/watch?v=hrOR9mYk0Vs&list=P...

[Scott Hollister]

Hello @John LaMedica,

My assumption would be inflation. On average there is about an 3% growth per year in the US (This depends on your area as well) 

But remember you won't be making that much more each time with the increase and DO NOT buy a property based on future cash flow (This is risky business, although there are a few exceptions)

Your cost to maintain the property in the coming years that will require that extra cash flow. Taxes almost always go up so you can count on most of that inflation to go there. Cap Ex like roofs and HVAC will cost money over time. 

As @Brandon Turner always says: Those examples are for HIS market and might necessarily hold true for your area.