If you’re thinking about investing in a rental property in Rochester or the surrounding area, you may be weighing the costs and potential income, and you’re probably wondering: “How much cash flow do you need for a rental to make sense?” This is a great question, and the answer might surprise you…
Cash flow. It’s the reason why most real estate investors acquire rental property! So if you’re wondering how much cash flow is actually needed for a rental property to make sense in Rochester – GREAT question.
The answer is challenging to give, because let’s face it, the number is different for everyone. Regardless, here a few ways to help you figure it out for yourself…
How Much Cash Flow Do You Need For A Rental To Make Sense In Rochester?
Many investors want to start right out of the gate with a highly profitable, cash-flowing property. Don’t get me wrong, I get it. But it’s important to understand that’s not always the case right away. For example, take millionaire cash-flow real estate expert Robert Kiyosaki’s first real estate investment: it was just $25 cash flow positive each month! Yet today, Kiyosaki is very successful and wealthy.
It can be hard, but the first thing you need to do is make sure your expectations are realistic. Rather than putting your focus on getting a single, large cash flow amount each month, think of it a different way: at the end of the month will you have less money left over, will you have exactly the same amount, or will you be profitable?
The interesting thing is: all of these can be viable options…
Cash flow negative
This is when your expenses are more than your cash flow. While some investors immediately say “Yikes!” and want to avoid this scenario, it’s not that bad if the expenses-to-income is fairly close or if the expenses are going to be more than cash flow for just a short period of time. While you may not want to have a large cash flow negative scenario for years, it might make sense in the short-term (especially if you are borrowing money to pay for the investment).
Cash flow equivalent
This situation occurs when your expenses are about equal to your income each month. If you’re currently cash-flow negative, your goal should be to get to equivalence as quickly as possible. Reaching equivalence for the short-term may mean you’re on way to profitability. However, if you maintain equivalence, you might be looking to a profitable pay-off on the sale price of the property when you decide to sell.
Cash flow positive
When your expenses are less than the income you earn each month on your properties, you are cash flow positive, and as you can guess, it’s a great place to be. In the words of Robert Kiyosaki (from his book Cash Flow Quadrant), he would be willing to buy investments that were even $80 cash flow positive each month – and willing to buy as many of those as he could get his hands on! Fortunately, it’s not hard to reach this level… and beyond.
So, consider this: how much cash flow do you need for a rental to make sense in Rochester? Probably less than you think! After all, Kiyosaki started with just $25 cash flow positive each month and there are some scenarios where even temporarily cash flow negative investments make sense. It all depends…