Welcome McFinancers. With the end of the year fast approaching, we wanted to take the time to go over different ways for investors to get cash flow from their investments. As investors, we know that there are two investing strategies: capital gains and cash flow. A reminder that capital gains are made when an investor buys something for a low price and sells it after it has appreciated. This offers investors the chance to increase their money exponentially over a short period. On the other hand, investors can invest for cash flow. This is when investors buy assets that provide a consistent income over time. Each investing strategy has its pros and cons and each investor has their preference on their investing strategy. Here at McFinance, we recommend that investors focus on cash-flowing assets over capital gains due to their reliability in any market, and it’s more passive than capital gains investments. Over the next four weeks, we are going to look at different ways for cash flow in the stock market, crypto, commodities, and real estate.

Week 4: Real Estate

For the last part of the cash-flowing series, we are going to look at real estate. Real estate is one of the oldest investment assets that have been around for centuries. Some of the richest people in the world own large portions of real estate. It offers major advantages over other assets. In the US, you can claim tax deductions for properties, claim depreciation on your taxes, and offer predictability as everyone needs a place to live so there is always a market. While real estate has its advantages, it does have disadvantages like every other asset class. Real estate can require a large capital investment to put as down payments for the property/land. There is also a lot of knowledge required to buy a house with terminology, inspections, and contracts. Then there is the possibility of having bad tenants. Real estate assets aren’t for everyone as they require a large amount of time and effort but they can be worth it if you learn to be a successful investor.

Rental Properties

Investors can leverage rental properties as a robust strategy for generating cash flow. The process begins with property acquisition, where investors purchase residential or commercial properties aligned with their financial objectives and investment strategy. The primary source of cash flow stems from rental income, with tenants covering expenses such as mortgage payments, property maintenance, taxes, insurance, and operational costs. Achieving positive cash flow, wherein rental income surpasses expenses, provides the investor with additional income that can be reinvested, used to pay down the mortgage, or contribute to their financial goals. Rental properties may also appreciate over time, yielding capital appreciation upon sale. Moreover, tax advantages like mortgage interest deductions and property-related expenses can enhance cash flow by reducing the overall tax burden. Additionally, rental properties offer diversification from traditional financial markets and can be managed directly by the investor or through a property management company. Investors need to conduct market research and due diligence to select properties in areas with a stable or growing rental market while understanding the responsibilities and risks associated with property ownership.

REITs

While investors can own physical land, it is worth noting that investors can own real estate through the stock market. Real Estate Investment Trusts (REITs) are a compelling means of generating cash flow for investors. REITs provide an opportunity to invest in real estate assets, such as commercial properties, residential complexes, or infrastructure, without the need for direct property ownership. By purchasing shares in a REIT, investors gain access to a diversified portfolio of real estate assets. These trusts are required by law to distribute a significant portion of their income to shareholders in the form of dividends, making them an attractive source of regular and potentially high yields. This consistent income stream can serve as a stable cash flow source, offering both capital appreciation potential and portfolio diversification. REITs are particularly appealing for those seeking exposure to real estate markets while benefiting from liquidity and professional management. However, like any investment, it's essential to conduct research, assess the specific REIT's performance, and consider factors such as property types, market conditions, and dividend yields when incorporating REITs into an investment strategy.

Conclusion

We hope you learned something new today. Real estate has been one of the most reliable sources of cash flow for investors. It is probably the best asset to have to help generate cash flow among the different assets. While it isn’t easy to just start investing in real estate, it does require time and effort to learn and develop skills for investors. Leave us a comment if you want to learn about anything more.

* The examples used in the above scenario are for educational purposes and are not financial advice. Investors should do their due diligence on investments. Also, remember that you should never invest money that you are not willing to lose.

* Investing can be unpredictable and volatile. Investors should always do proper due diligence to determine if assets are right for them. We are not licensed tax or financial professionals.