What is Cash Flow in Real Estate? – Residual Income


Back to the basics. Real estate cash flow.
What is it? is it important? should it factor into my decision making?
Kris Krohn here with Limitless TV and today we’re covering the basics on
understanding what real estate cashflow really is. Alright you did it. You put a smile on
my face you requested a video that I kind of do want to make. The video today
is on real estate cash flow. What is cash flow? It’s a big buzzword right? People
talk about residual income, they talk about cash flow, well I want to actually
define it and create clarity on what it looks like in real estate investing so
that you can be smart. I can’t tell you how many, I cannot believe that people
will go out of their way and do what I’m about to show you. Hey Kris I watched
your video and guess what now I’m a real estate investor because I bought a house.
Check it out the house is valued at $100,000 and I
purchased it for $100,000 and my mortgage on this house is $600 and guess
what? I rent it for six hundred and fifty dollars. I’m a real estate investor.
You’re a nincompoop. This is not a good deal. There’s no equity, there’s $50. Kris
$50 there’s a lot of money to be. No it’s not! Someone broke the
window the baseball kid with the next door on the bat and then ouch. Guess what
the window costs? $200. okay Rewind. Let’s talk about, let’s talk about real
cashflow. Let’s talk about how to do real estate. Let’s talk about, let’s talk about,
how to make this awesome. First of all, couple of rules do we got
play. Number one, buy single family homes. Your cash flow sweet spot is not on
condos it’s not on townhomes and it’s not on most duplexes because most
duplexes do not get sold at a deal but single family homes that are entry level.
I’m talking about 3 to 5 bedrooms and we’re talking two to three bathrooms.
Okay this home if I were to draw you a curve and just talk about where you
maximize your cash flow you got to check this out real quick. This line represents
the value of a home and on this end this is a hundred thousand dollar home and on
this end we have a million dollar home and then guess what? There’s a there’s
market rental rates. For this home and that home.
For example let’s plot a line. On a million dollar house my rent that I can
collect my mortgage on a million dollars let’s call it as a, let’s just call it
10 grand but I can only rent for five thousand. So guess what? if you buy a
million dollar house you are going to be underwater every month in this scenario
by five thousand dollars. Opposite extreme right over here. I buy a house
for a hundred thousand dollars. I have a six hundred dollar mortgage and I
can rent it for $900 let’s just say. So this is a six hundred dollar mortgage
and this is a $900 rent. See how above the line here let’s draw it like this, what essentially I’m telling you is that at some point we cross a barrier and
when we cross it, you lose cash flow. You can’t get ahead the mortgage is too
expensive. What is that number? In most cases it is somewhere ish right around
$300,000. Hence, I don’t buy $300,000 homes. These are the homes to go
underwater when the market takes. I don’t want to just teach you what is cash flow
I wanna teach you how to maximize cash flow and you’re gonna maximize that cash
flow in this sweet spot right here. It’s gonna be somewhere between a three and a
five bedroom home and it is a single-family it’s not two bedrooms it’s
not one bedrooms it’s right in that gap. Now by the way I could over here have a
four hundred dollar cash flow but I have to pay more money for it. Down here $300
in cash flows bigger than four hundred because it took me less to get into it
does that make sense? So I’m just talking about entry level
nice single-family homes three to five bedrooms two to three bathrooms. And now
let’s talk about this cash flow deal like so what is my cash flow? Let’s use
this example. I bought a home it was valued at $100,000 and I’m able to
purchase it for $70,000. This house right here I now have with after my down
payment everything I may have a mortgage of $500 a month but I have a rent of $900 a
month. The difference between all of my expenses minus my rent is my cash flow.
I’m not the property manager. I hired a property manager. My property
manager is taking $90. 10% of the gross. So there’s not a $400 difference now
there is a three hundred and ten dollars and someone’s doing all the work. Now if
you like me, I learned this lesson. If you want something done right don’t do it
yourself personally, I would rather pay someone 90 dollars and have a smaller
take home but do none of the work so my mind can be fresh to do what? do it again.
If it works once why not do it 10 more times? why not do it 20 more times? This
is the essence of what cash flow is. Now let’s break down how sweet this is. Let’s
say that you have a job and that your job let’s say that you get paid $15 an
hour. That’s what you are earning in the job market but your house is paying you
three hundred and ten dollars every single month residually. How many 15
hours can I put at $15 an hour how many hours can I put into that three hundred
and ten? Twenty point six hours. Instead of you getting a
second job of it that’s an extra five hours a week, instead of you working in
extra twenty hours a month, guess who is going to work every month at your income
rate an extra twenty point six hours? No commute required. Your houses. Your real
estate is. You’re like, oh my gosh this is so freakin amazing.
I should go buy five of these houses. Five times 300 a month equals 1500. Guess
what that is? that is 100 extra hours a month that you are not working. Your real
estate now is going to work for you. Your real estate is making it happen like do
you see how cool that is? Which brings up the point, how much real estate do I need
to buy to not have to work? So that’s the question, how much
real-estate do I need to buy to retire? That’s a good question.
My wife and I when we designed our number originally it was ten thousand a
month. We said I could quit my job if I had ten thousand a month coming in. So I
started doing deals where I was making three hundred cash flow here
five hundred cash flow here two hundred cash flow here four hundred cash flow
there and eventually it got up to over ten thousand dollars a month. In fact
when it hit 12,000 a month, I quit my job. So you get to start thinking right now,
now’s the time to make a goal and by the way if this is your retirement on line,
then you got to get seriously get a serious education. Don’t mess around. You
do one deal wrong you can bet and risk and lose the entire farm. You might have
401ks or IRAs or you might be like me starting with nothing but getting the
right education and having the right team is going to make it happen with
time. In fact, you can click the form below and ask for my next limitless
wealth intensive. Come and spend three days with me and my team and let’s talk
to you about the education that you need to actually get going and doing real
estate wherever you’re at. You got no money and no credit? You can do a deal
right now. If you got lots of money, and lots of credit, you can do a deal right
now. In fact it doesn’t matter what your resources are you can do a deal right
now. Now that you’ve got great clarity on real estate cash flow come spend a
couple of days. Meet me and my team. The first thing you’re gonna say is whoa
Kris you’re so big. You’re so much bigger than on the small screen. Well yes
I am. And me and my team are gonna sit down and we’re gonna expose you to the
different type of real estate options, investments, mindset training, to help you
take your next step forward in life. Be sure to subscribe, click the links below,
learn more about what we’re up to and we’ll keep on helping you.

17 comments

  • God bless America

    Wow wow please i want you to be my mentor. Am ready sir. Teach a young kid the way. College is 👎

  • So when you find an investor to put up all the money because you found the deal and you rent the property out, does the investor take all the rental income or do you take a percentage too?

  • These videos are getting better and better, really helping plan my next stage in buying real estate. Cheers Chris

  • Limitless what was your age when you started with real estate? ???

  • Hi, Kris. There's a lot of real estate investors that say renting your personal home is better than owning it because there's a lot of expenses you don't have to worry about. But if you don't own it you can't cash out re-fi. So maybe your first house you should buy so you can get some cash to get started investing, but after owning your first house is it better to start renting?

  • How do you buy a house valued at 100k for only 70k?

  • Hey Kris, why do you suggest investing in single family homes instead of 16+ units like Grant Cardone? I'm sure you've had this question a few times… PS, thank you for all the value you provide on this channel!

  • Can you make a video on why you would prefer single family investing over a 3 or 4 Plex or apartments?

  • Amazing video!! Thanks so much. It was so good I watched from start to finish twice! Just wish you had those 2 or 3 day programs in Toronto, Canada, otherwise I'd totally go 🙁

  • You're great Kris. Love the videos and the fact that you don't even have to do them, you do them just to help others, that right there is admirable

  • Matthew Estremera

    Hey Chris ! I'm 19 years old and not quite in the position yet to start buying homes or obtaining lines of credit, but I'm just trying to get ahead as much as I can. Could you explain how you actually keep track of you gains and losses for your portfolio to show others. What does something like this look like?

  • I am currently 17 yrs old. And I am really interested in getting into real estate. Am i too young even though I have a good amount in my savings?

  • Hey man i really like your ideology on using an FHA loan on real estate and renting out the basement. My only concern about it is the commonality of finding people to rent out a basement. How hard was it for you to get someone interested in renting the basement out in your first home?

  • Hey can someone help me? I understand everything until the property manager. They only make 90 dollars per month? Why would they manage my property for that?

  • That "real estate investor" example at the beginning had me rollin' hahaha. You sounded like the late great Chris Farley, it was amazing. Great video all-together brotha. Best thing ever was to subscribe to my man Kris! Keep up the great work Limitless TV!👍🏻💪🏻

  • Thomas Valentine

    This man is amazing. So much passion in what he is talking about. And his verbal skills are unbelievable, always interesting to watch and to listen. Kris you Rock!

  • Lambda ΛΑΜΔΑ

    What type of mortgage is preferable? 30,20,10 years? Fixed rate?

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