Investing for Cash Flow

Most millionaires share a common strategy, and it’s no secret – they focus on building multiple streams of income. 65% of millionaires have at least three income streams, and nearly a third of millionaires have five or more income streams.

Generating regular consistent cash flow is the single best way to build wealth. Investing for cash flow has numerous benefits and can propel your investment strategy to provide richer returns. Building up substantial income-producing assets puts your money to work for you and will gradually allow you to not have to work for a living.

“Never take your eyes off the cash flow because it’s the life blood of business”

Richard Branson

Cash flow is king

Cash flow gives you financial flexibility and can help reduce portfolio risk. You can reinvest the cash, build up a financial war chest, and explore other investment opportunities. You aren’t tied to the single cash flow investment, and placing your money in a manner that returns regular cash gives you the freedom to explore other potentially lucrative options.

From a retirement perspective, it is much better to have a regular steady income than a potential capital gains payout that could be rocked by market volatility. Investing in assets that pay you back reliably over time is oftentimes safer than investing in assets that could turn out to actually be expensive liabilities in the end. In cases where you would have to choose between a high inconsistent return or a lower consistent return, it generally makes more sense to go with the more guaranteed payout. Knowing that you will receive money on a set period allows for better financial planning.

Your income-to-debt ratio is an extremely important financial signal for lenders to give you access to additional leverage. Showing stabilized cash flow returns on income-producing assets counts towards your income, and can, therefore, give you access to even more money to help grow your wealth (hopefully by investing in more income-producing assets!).

Cash flow investments don’t rely as much on timing the market. There is still some risk involved, but there are many ways to mitigate that risk. Hedging against market volatility and diversifying into alternatives that provide regular cash returns is an important strategy to maintain financial health in turbulent times.

Types of cash flow investments

There are many ways to invest for cash flow. Some examples are real estate, buying a business, utilizing a high-yield savings account, peer to peer lending, and dividend stocks. Here at Upside Avenue, we believe that real estate is one of the more attractive options. Real estate is an alternative asset class that is generally non-correlated to the stock market and generally provides both cash and appreciation returns.

There are many ways to be involved in cash flow investing in the real estate industry. Investment properties come in all shapes and sizes and the deals are generally only limited by your creativity. Some classic examples of income properties are multi-family units, apartment buildings, trailer parks, short term rentals, vacation rentals, farmland, timberland, REITs, and more.

When placing money in real estate, you have to understand your numbers and make sure that you are getting a proper positive cash flow return. Below is a simplified example of a deal that shows significant cash flow.

Number of Units: 50
Monthly Rent per Unit: $1,000
Total Monthly Rent: $50,000
Expense Ratio: 40%
Expenses: $20,000
Net Income Per Month: $30,000
Reserve Ratio: 5%
Reserves: $1,500
Free Cash Flow at End of Month: $28,500

Now that free cash flow at the end of the month can be reinvested or used to fund your lifestyle.

No matter the market timing, there are always deals to be found in real estate. Underwriting the deals properly is the single most important thing you can focus on to ensure consistent cash flow returns.

Cash flow is important, and now more accessible

As we have seen with recent coronavirus events – equity markets tumble due to uncertainty and global supply chain constraints, consumer spending halts on non-essentials, and massive amounts of wealth get erased overnight – alternative asset classes that pay you reliably can be the diversification that your portfolio needs to withstand times like these.

Upside Avenue provides a low barrier to entry for investors looking to benefit from real estate as an alternative asset class. The professional underwriting team, impressive historic returns through market cycles, and risk mitigation through scale that Upside Avenue provides its shareholders is an attractive option to stabilize your portfolio.