Investment Real Estate – Building Monthly Cash Flow

At The Phoenician League, we advocate the principle of asset allocation. This is about spreading your money – your capital – across several different asset classes according to a personalized model. The purpose here is true asset diversification.

A robust asset portfolio will consist of some combination of the following:

We dedicate a separate page to provide a high-level overview of each of these asset classes. In this entry we’ll cover investment real estate.

Investment Real Estate – A Timeless Hard Asset

Famed industrialist Andrew Carnegie once said that 90% of all millionaires become so through owning investment real estate. I’m not sure if that’s the case today, but this speaks to the timeless nature of this asset class.

The key to investing in real estate is to focus on quality and cash flow. Cash flow is king.

I know there are plenty of people who speculate on real estate hoping the price goes up. Others are always looking for an old dilapidated property that they can buy for a song, fix up, and then flip. I don’t care much for either of those games.

To me, the best approach to investment real estate is to buy nice new construction properties and rent them out to tenants on a long-term lease. Having owned both new construction and older rehabs, I can say from experience that new properties usually make for better rentals.

It all comes down to a principle we discuss frequently – investing is about ownership. When it comes to my real estate portfolio, I focus on homes that I wouldn’t mind living in myself. They are properties that I’m happy to own.

But remember, cash flow is king. I would never buy a property if it couldn’t produce cash flow from day one. That is to say, the rent must be able to cover the mortgage, taxes, insurance, and property management costs.

Speaking of, we should always use a professional property management firm to manage our properties. I know people who self-manage... they are constantly stressed to the max.

Self-managing your properties is like having a second job. I’d rather hire a company to do that work for me. They’ll be able to do it better anyway.

So if we buy nice properties that are professionally managed and generate cash flow, real estate provides us with:

  • Steady Passive Income: Our property manager collects the rent and deposits it into our bank account every month.
  • Inflation Hedge: Fixed-rate mortgages become easier to pay as inflation rises and rents increase – offering a shield against inflation.
  • Tax Advantages: Depreciation can offset our rental income entirely, wiping away our tax liability. This makes the cash flow we receive purely net income. We can also run real estate through an LLC to open the door to a myriad of other tax deductions.

Now, getting into investment real estate is a slow game at first. But imagine owning a portfolio of 10 single-family homes, each generating $600 a month in cash flow. That’s $6,000 a month coming in like clockwork... not bad for passive income.