Cash Flow Property

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3 Powerful Cash Flow Property Advantages Exposed

Cash flow property advantages are truly hidden from the general public. Think about it. Have you ever sat down with a financial planner and wondered why he has never recommended that you take your money and invest in cash flow properties? I mean really… many of the wealthiest people in the world have used cash flow property to literally build empires! Trump, Kiyosaki, Hilton, Kroc, and Donald Bren come to mind. Yet, how often are you advised to look into it?

While you are are pondering that question, think about this: cash flow property when compared to “traditional” investments peddled by many “financial planners” may provide higher returns with less risk and more control to you, as the investor.

Since many are unfamiliar with the importance of cash flow as it relates to any business. Let’s start there with a quick definition:

Cash Flow: The amount of net cash generated by an investment or a business during a specific period. One measure of cash flow is earnings before interest, taxes, depreciation, and amortization. Because cash is the fuel that drives a business, many analysts consider cash flow to be a company’s most important financial statistic. Firms with big cash flows are frequently takeover targets because acquiring firms know that the cash can be used to help pay off the costs of the acquisitions.

Isn’t that interesting… (Note the underlined sentence above) But, how does that relate to cash flow property? Think of it this way; each cash flow property that you own can be considered its own “company”. That is each cash flow property has income in the form of rent, and expenses in the form of taxes, maintenance, or debt service. So, just like large companies have income and expenses, you as an cash flow property investor will as well.

So, first and foremost, understand that there is a difference between investing and speculating. An investor will buy cash flow, while a speculator will bet on a rise in price or buying low with the hope of selling in the future at a higher price. In the investment property world, speculators are known as “flippers”. This is a topic for another discussion, yet just know there is a difference.

Now, what are the advantages of knowing how important cash flow can be? And, why do I prefer cash flow property to speculating or “flipping” a property?

Advantage 1: When buying cash flow property, I am creating a recurring income stream. So, when I invest my cash in a property that I will in turn rent to a tenant, I am effectively being paid for having put my money at risk. The tenant will pay me to live there which creates my income for the property. Having income from the property gives me a steady stream of cash flowing to me which I am free to use.

Contrast that with the scenario of flipping the property. If i put my cash into a property for the purpose of fix and flip, then while the property sits vacant, or is under repair, or being advertised for sale I am not receiving any cash flow. My cash is effectively tied up and not available for me to use until I sell the property and I will only benefit if I sell for more than I have put into the property. I personally would prefer not to have to sell a property in this market given the current conditions as it may take some time. During the time I am holding the property and waiting for a sale, that property is costing me money in maintenance, taxes, and advertising.

Advantage 2: Buying cash flow property creates an asset. What does that mean? It simply means that you now control or own something that pays you! The real difference between assets and liabilities is that assets pay you and liabilities require payment from you. Your personal residence is not an asset, it is a liability! It requires payment from you in the form of mortgage. Even if your home is paid for, it requires payment from you in the form of taxes, insurance, and upkeep to name a few. In reality your house is an asset for the bank that owns your mortgage, or the state and federal government that collects your property tax, and the maintenance man who does your lawn… For you though, your home is a liability!

Buying cash flow property creates an asset because you put a tenant in the property who pays you. The rented property throws off cash flow that you can use or reinvest. Every time you buy a true asset, you get one step closer to financial freedom and a life of liberty.

Think of it this way… If your lifestyle costs you 5,000 per month, you only need to have assets which pay you 5,000 per month to maintain your current standard of living. Why would you have to work at a job if you have other sources of income? You wouldn’t… That’s the beauty of owning cash flow property. It puts you one step closer to freeing yourself financially.

Advantage 3: Buying cash flow property creates tax advantages. That’s right. And, probably one of the most misunderstood tax advantages is that of depreciation or “phantom cash” as some call it. Basically, phantom cash (or depreciation) can be taken literally as just that, it is money that doesn’t exist. Depreciation is a government incentive and tax loophole of the rich so they can benefit from real estate to a greater extent. The wya it works is this… government states that you can take the value of a building divide it by 27.5 years and deduct that amount from your taxable income every year!

Let’s say that I buy a building valued at $100,000 and I rent it out at $1,000 a month ($12,000 a year) then I would be allowed to subtract ($100,000 / 27.5) which is about $3636 a year from my taxable income. Which means I only have to pay taxes on $8364 $($12,000-$3636) for that year not including the other deductions you get from real estate.

Many tax advantages for real property exist, which makes it one of the best investment vehicles out there. I can write a book on cash flow property tax advantages alone! And, I might… You can find more information on cash flow property and get a FREE ebook here at Arizona Investment Property by Clear Vision.

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