[Jackie Lange]

Jackie Lange

I just published a new article about how to generate cash flow. Why do you need to generate cash flow?

Cash flow can provide financial security and financial freedom. Cash flow can support you if you lose your job or just want to take an extended vacation. When you get enough cash flow coming in every month, you can quit your job! Monthly cash flow from rental properties can increase your retirement income so you can maintain your lifestyle when you stop working. Cash flow is money that comes in month after month without working 40+ hours a week at a job.

So, now that you know some of the benefits of cash flow, let’s talk about how to get cash flow.

How to Get Cash Flow From Rentals

[Jackie Lange]

Jackie Lange

Here’s another article about why you should own rental properties & how to acquire them:

WHY YOU SHOULD OWN (OR CONTROL) RENTAL PROPERTIES

As you well know, the US government is in debt up to its eyeballs. So, there is a good chance that things like Social Security will not be there for you when you are ready to retire. Or, the government could change the rules so you won’t get Social Security until you turn 70 or older. The average Social Security check is only $1200. The maximum Social Security check is only about $2400. That’s not much to live on! And that’s another reason why you need to own cash flow producing rental properties.

Perhaps you don’t want to wait until you turn 62 or 65 or 70 to stop working. If that is the case, you need to have a source of steady monthly income to support yourself WITHOUT working at a job.

Rental properties are the solution! But you need a plan.

Following in an excerpt from Volume 2 of the Management Masters Collection which will help you think through planning WHY and HOW

If productive, single family house management is to be your goal, then you should start by setting down those things you want to achieve as a result of your management. If your objectives are purely financial, then you need to define precisely the range of financial rewards you expect to achieve within the time you set to accomplish them.

Each person will have a different frame of reference, but I believe that most financial goals can be realistically attained within 5 to 7 years in the United States. On the other hand, your aim may not be to reach a specific goal within a certain time period. Instead, you might choose to make the management process itself your goal.

Too often one is pressured to define one’s goal as a destination instead of a journey. “Destination” goals are fine, but they must be succeeded by supplement goals. “Journey” goals can reduce stress, but they don’t give one the satisfaction of a job well done, because by definition, the job is never done.

For example, “journey” goals might be the goals one has as a spouse. While children look forward to destination goals such as growing up and starting their own careers and families, spouses look forward to journey goals, doing all the things spouses do. All their lives: They base their contentment on the PROCESS of being good mates, companions, co-workers, co-venturers, not on merely achieving the end product status of “spouse” itself.

I think people who paint bridges must have “journey” goals. By the time they get the bridge painted, it’s time to start over again at the other end. The job is never done: Neither is house-keeping: Neither is management:

For the moment, let’s agree that you can establish goals relating to the management process that will improve your performance and that of your investments. At the same time, let’s agree that there are three or more choices; you can restrict your management goals to the time it requires for you to reach certain financial objectives. After that time you can (a) either assemble a management team and continue to manage from “aloft”; (b) You can sell out and select another objective within your newly acquired financial means; or (c) You can move into other investment areas as you might choose. How should you go about your goal setting? Why should you bother? –

Management takes on myriad forms, but management of the single family house portfolio depends upon the manager’s being able to communicate what is expected of the tenants to them in clear comprehensive terms. Determination of the specific results that you expect from the tenants is directly related to what you hope to achieve with the property. Do you expect to turn it over in a few years? Are you going to assemble a large portfolio to use as the basis for movement into much larger properties via the exchange route? Do you feel that your best hope for the future lies in the benefits long-term holding of a single house portfolio will provide in terms of rental cash-flow and estate planning flexibility? Do you want to form a corporation and use your assembled collections of appreciated housing as the nucleus of the contributed capital for expansion into other fields?

All these things will affect management philosophy and pro¬cedures you must pass on to your tenants. Your management philosophy as expressed to your tenants through your Rental Contract directly impacts on your investment portfolio performance. You must there-fore determine your financial objectives precisely to identify the quantity and in which of the specific fiscal periods you will want to accomplish them.

For purposes of illustration, suppose you decide that your personal objectives are best served if you plan on holding a portfolio for twenty years. You will schedule about five years to assemble the properties. You will continue to plow back cash-flows for that period of time. After that time, you will give yourself the option of using cash-flow rents to provide for first line management support and for supplementing your other income to provide a more lavish life style. Alternatively, you might prefer to send your heirs through college. Or you might choose to support more expensive hobbies instead, such as flying, sailing, and travel. After 15 more years, you will probably be finding ways to pass on your mature portfolio to your children to minimize tax costs through basic estate planning.

So far so good. You know what you are going to do with your houses during specified time frames. Now what about your acquisition program?

* How much money will you want to invest?
* Where will it come from?
* How many houses will you buy?
* Where will you buy them?
* How fast will you acquire new houses?
* How much is enough?
* How much money are you trying to acquire?
* How fast?
* What for?

You might as well decide on the number of houses you want to own in five years. Let’s say that you intend to buy two per year the first three years, then four per year after that, until the fifth year. Your reasoning is that you will have gained a lot of valuable experience as a buyer in selecting and structuring financing the first three years, and after that you should be seeing positive cash flows. Furthermore, you’ll be more adept at managing your own budget as a result of three year’s experience. After that, you can plan to continue to buy a house every six months provided the cash-flows will support that schedule out of surplus funds.

That will make a total of 44 houses over twenty years, with 14 of these being bought during the first five years.

We will presume that your houses will be selected carefully to take maximum advantage of the projected growth of your community. The average appreciation in the houses you select should lead your area at 15% per year if, as expected, the inflation rate continues in the present pattern. This means that your typical $75,000 house will double in value every five years.

If you meet your “growth” goals, your 14 house portfolio will have a net equity value of well over one million dollars in five years:

If this continues to grow at the same rate, it will provide cash-flow and growing assets to enable you to support lavish life-style needs as well as for buying additional houses. If you start at age 35, in twenty years you’ll be 55 with about 5 million dollars worth of assets and a net worth of 2¼ million dollars. This will continue to increase each year, funding any conceivable eventual future plans. To give you older folks hope, a ten year old portfolio will give you a net worth of one-half million dollars and 24 houses valued at about $2.3 million.

There: If you approach your financial planning along these lines you will have spelled out a scenario of your possible goals in a fairly workmanlike manner so that you know the general direction you are taking. You will have scheduled points where you’ll be able to change emphasis. You will have plugged some estate planning considerations into the picture.

By setting out specific time frames for your financial objectives you’ll have created something against which you can measure your performance. In order to remain self-motivated, you’ll need some point of reference so that you’ll be able to measure objectively whether you are moving toward your goals as you planned. This is important.

Without specific financial and time objectives your program will be about as effective as a football game would be without goal posts. Like it or not, you are part of a success-motivated society. Americans like to win. You will get most satisfaction out of your achievement when you meet the performance standards that you set for yourself.