If you’re thinking about investing in a rental property, you might be weighing the costs and potential income. If so, you’re probably wondering: “How much cash flow do you need for a rental to make sense in Texas?” This is a great question, and the answer might surprise you…
Investing in a rental property is a big decision, and many people tend to weigh the costs and potential income. One of the key questions that potential investors usually ask is: “How much cash flow do I need for a rental to make sense in Texas?” This is a valid concern and the answer is not straightforward. The cash flow of a rental property is crucial, as it is the primary reason why most real estate investors choose to invest in such properties.
The answer to the question of the required cash flow varies from person to person, and there is no one-size-fits-all answer. However, there are several ways in which an individual can determine the right amount of cash flow that they need. It’s important to keep in mind that the first step is to set realistic expectations, as not every investment will be highly profitable from the beginning.
Cash flow expert Robert Kiyosaki’s first real estate investment was just $25 cash flow positive each month, and he has since become one of the most successful and wealthy real estate investors. This goes to show that success in real estate investing does not always come from having a high cash flow from the outset.
Instead of focusing on a large cash flow amount each month, it’s crucial to consider whether you will have less money left over at the end of the month, exactly the same amount, or whether you will be profitable. There are three options when it comes to cash flow from a rental property: cash flow negative, cash flow equivalent, and cash flow positive.
Cash Flow Negative
Cash flow negative occurs when your expenses are higher than your income. While this may not seem like the ideal scenario, it’s not necessarily a bad thing if the expenses-to-income ratio is close or if the expenses are more than the income for a short period of time.
Cash Flow Equivalent
Cash flow equivalent occurs when your expenses and income are roughly the same each month. If you’re cash flow negative, your goal should be to reach equivalence as quickly as possible. Achieving this in the short term may mean that you’re on the way to profitability, but maintaining equivalence could also mean that you’re relying on a profitable pay-off when you sell the property.
Cash Flow Positive
Cash flow positive is the best-case scenario, as it occurs when your expenses are lower than the income you earn from your properties each month. Kiyosaki has stated that he would be willing to buy investments that are even $80 cash flow positive each month and as many of these investments as possible. This level of cash flow is not hard to reach, and it is possible to go beyond this level as well.
In conclusion, the amount of cash flow you need for a rental property to make sense in Texas is likely less than you think. Kiyosaki started with just $25 cash flow positive each month, and there are scenarios where even temporarily cash flow negative investments can make sense.