Why Cash-Flow is King in Real Estate

For many cities with high costs of living like New York City, Los Angeles, or Seattle, investors bank on home appreciation prices to stay positive, putting them in precarious and risky position where they are highly susceptible to market fluctuations. This over-reliance in fact, is the reason why a majority of home-owners and investors alike in the Great Recession went bankrupt as the crash decimated the equity that they had put in to their properties.

However, one of the strategies that allowed some property investors to survive and in fact thrive is positive cash flow. Positive cash flow is a fairly simple principal: INCOME - COST > 0. The saying "Cash-flow is king" exists for a good reason;

Property values cratered in 2008-09 and home appreciation prices largely peaked at the beginning of 2018, if you didn’t buy in then, don’t expect it to keep going up. That sharp blip in the yellow region is largely due to an all time low interest rates jacking up the prices.

However, rent stayed stagnant and has never actually fallen, tracking with inflation. What this indicates is that as long as you can cash flow, you'll be able to hold your property through any downturn.

As you cash flow, you can use the earned capital towards acquiring more properties, allowing for compounding growth while minimizing risks of price corrections wiping you out.

Food and data for thought