Tag Archives: cash flow investing

6 Drivers of Rental Cash Flow Profits

3 May

Economic trends are like the movement of the stars. They are always in motion, and once in a great while a unique alignment occurs that has not been seen before, and may not be seen again in our lifetimes. Just such an alignment of factors is now occurring, and for the real estate cash flow investor it represents probably the greatest opportunity we may have seen.

Let’s take a look at the 6 factors that are driving this unprecedented opportunity:

1)      Record Low Interest Rates – Interest rates are at low levels that we have never seen before, and the Fed (for the time being) is keeping them at these record low rates. This means that the interest rate as a percentage of cash flows has never been lower.

2)      Low Housing Prices – On a national level housing prices have crashed to a pre-2000 level. The current affordable housing prices combined with the low interest rates have created a situation where the cost of mortgage payments have seen a total inflation adjusted reduction of 49% over a five year period.

3)      Increasing Rental Demand – Since 2006 there has been a basic shift underway moving from home ownership to rentals. This shift to rentals strongly favors the cash flow investor.

4)      Decreasing Vacancy Rates – The demand factor is driving rental vacancy rates to very low levels. Nationally rates are under 10%, and in major metropolitan areas can be as low as 5% or less.

5)      Decrease in New Construction – New rental units, as well as new housing starts remain depressed. While there have been some signs of life recently in the building sector, the current economic conditions are keeping the building sector from taking off.

6)      Increasing Rental Rates – The above factors are contributing to rising rental rates. It has been projected that rates are expected to continue to rise in many markets above the rate of inflation.

As you can see the factors outlined when combined create what is a real opportunity for the cash flow investor. Add to this that inflation alone is likely to increase housing values at a healthy rate over the coming years, and you can see what a powerful investing opportunity is sitting in front of us.

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