Cash Flow Growth

As good as all this Equity Buildup is (and it is very good and very real to a Millionaire Real Estate Investor), it is not the whole story. There is the added benefit of Cash Flow Growth to consider (see Figure 14). Net

Cash Flow is achieved from a real estate investment when the rental income you receive is more than the costs you incur. The costs include your expenses, an allowance for vacancy, and debt service (the mortgage payment on the property). All this will be outlined in more detail in the section on the Acquisition Model.

The Financial Model Part Two : Cash Flow Growth

Rent Appreciation + Debt Pay Off = Cash Flow Growth

Rent

Vacancy & Expenses

Debt Service

Net Cash Flow y

Buy It Right

Rent

Vacancy & Expenses

Debt Service

Net Cash Flow

Rent

Rent

Vacancy & Expenses

Debt Service

Net Cash Flow

Vacancy & Expenses

Net Cash Flow

Pay It Down

Figure 14

For now let's just say that if you buy it right, finance it wisely, and control your expenses, you can achieve a positive Net Cash Flow. As rents appreciate over time (historically, they increase at about the same rate as price appreciation), the cash flow will grow. Once the loan is paid off, the Net Cash Flow grows dramatically because your monthly mortgage loan payment goes away.

In our example of the $90,000 rental property purchased in 1988, we realistically could have received over the 15 years a total Net Cash Flow between $18,000 (if we had a 15-year mortgage) and $34,000 (using a 30-year mortgage).

In 2004, our sixteenth year "If I'm not going to make money, I of ownership, the annual won t buy it

Jim Castagnari

Net Cash Flow from the Millionaire Real Estate Investor property would be about Pittsburgh, pa.

$4,600 with the 30-year mortgage. In the case of the 15-year loan, since it would be paid off, our annual Net Cash Flow would jump to over $9,400.

Let's add it all up. Beginning with an investment of only $14,400, the following chart reveals the financial outcomes we could have achieved in just 15 years.

Financial Model: Your Total Return

Example Property: • Asking Price: $90,000 in 1988

Example Property: • Asking Price: $90,000 in 1988

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