Initial Cash Flow vs Long Term Cash Flow - The real truth

[Matt R.]

I have been reading some featured BP bloggers as there is always more stuff to learn in REI it seems. I noticed some real big misconceptions or errors for some expert bp bloggers. Without naming names, I just wanted to point out there is a big difference in cash flow numbers when you have rent appreciation factored in as part of the investment. If you only invest for initial cash flow you might miss the bigger picture to creating bigger pockets.

As I understand it, sometimes cash flow is very low to start and then with rent increases it grows and grows fast depending on demand. So you might start at $100 or $200 per door and then in about 10 years with rent increases you could be at $800+ per door. This is just one example - 300k purchase and renting at $2200 with factoring a 3% annualized rent increase. It could be more if there is some timed turnover as in some locations median rents can go up double digits in one year. (LA was up over 10% last year) 

I guess the moral to the story is take a look at the bigger picture when it comes to cash flow. 2% sounds great in the beginning, then compare that to 1% property that has 3% annual rent increases, while your at it go ahead and add some equity gains.  You will be surprised on how big a difference that becomes 10 years later. For sure this is general as someone in theory could still start very near 2% and still have 3% increases but this is not very common from what I have seen. The typical location for average 2% stuff is not in a historical appreciating area. 

The guy wrote the book on this subject just did a BP podcast. Show 113 I can recommend the podcast for more clarity on the matter. Jay Papasan- The Millionaire Real Estate Investor (co-written with Gary Keller)

Good luck with your cash flow search! 

Thoughts?