1. Cash Flow Cash Flow is a very simple term that every investor must know and prioritize. Cash flow is the money that you have left over after all your operating expenses and debt have been paid. Any deal that is not experiencing consistent, positive monthly cash flow should be seriously scrutinized before moving forward with. Always remember, cash flow is king! 2. Appreciation Appreciation is the rise in a property’s value over the course of time. For example, if you buy a property for $100,000, simply hold it, and sell it five years later for $125,000, then you can say that the property has appreciated $25,000. Like cash flow, this is a very simple concept; However, when it comes to investing, we should not rely on it. At times, investors will solely rely on appreciation while completely disregarding poor cash flow. Appreciation is a great perk of the buy and hold strategy, but it takes the back seat to strong, positive cash flow. 3. Loan Amortization Loan Amortization is the process of building equity through paying down the principal of the loan each month. Our total debt service minus interest equals amortization. The amazing aspect of real estate investing is that the tenants will take care of this for you by paying their rent each month. This is a great example of why debt is an attractive lever to pull in the game of real estate. As an investor, you can borrow money, have tenants pay off that debt for you, and at times see even greater returns than if you were to pay all cash.
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