“Cash flow” is a term that comes up in most conversations on real estate investing—and for good reason. As a landlord, if the rent you charge is significantly higher than your expenses, that difference can not only help you build wealth but can also serve as a potential cash cushion, there to soften the blow when you have too many vacancies or when the unexpected happens and you need reserves.
And the unexpected will happen, eventually. It could be anything from an old roof needing to be replaced to termite damage or even a bridge being built over your property. (Ask me how I know.)
After 30 years of investing in real estate, I can assure you that I have no shortage of bizarre landlord stories.
In those tough situations, many real estate investors tap into whatever access to capital they have, whether it be reserves, lines of credit, or even their network of private lenders.
Even so, the conversation is mixed on how much cash flow is necessary to provide that “cushion” and how much is needed to help the investor grow his/her portfolio.
This article first appeared on BiggerPockets.com.