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What are the Best Tips for Cash Flow Investing?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 24 August 2016
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Cash flow investing is all about generating a steady flow of income from investments. In order to accomplish this goal, it is important to choose the right investments and monitor their activity closely. This makes it possible to sell off any assets that begin to generate consistent returns that are less than desirable, and replace them with other cash generating assets that do provide the level of cash flow necessary to meet the investor’s expectations.

When using real estate as the basis for the cash flow investing, it is important to choose cash flow property that is likely to pay for itself while also generating some sort of steady return. For example, if the idea is to generate acceptable monthly returns on the ownership of an apartment building, it is important to make sure the total amount of rent collected on the individual units is sufficient to cover the monthly mortgage payments on the property. At the same time, allowances must be made for taxes, maintenance, repairs, and general upkeep on the facility. Assuming the total income generated by the lease of the units does cover all the essentials and still leaves a desirable amount of cash for the owner, the asset is said to have a positive cash flow and is functioning as a viable component in the cash flow investing strategy.

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A similar approach can be used when selecting different securities as part of a cash flow investing scheme. Here, the idea is to secure assets that offer dividend payments or disbursements that allow the investor to realize a steady stream of income from those assets, typically on a monthly basis. By securing the right balance between stock options, bonds, commodities and futures contracts, it is possible to generate that steady flow of cash and use that money for living expenses or to invest in additional securities.

Creating the ideal cash flow investing structure does require some effort. The assets chosen for this type of investment strategy must be somewhat stable and generate acceptable levels of return on an ongoing basis. Once in place, the investor must monitor the status of each of these assets, as well as what is happening in the marketplace and the economy in general. This makes it possible to project potential threats to the flow of cash and make any adjustments that are necessary. This may involve selling one asset in order to acquire another that is likely to perform at a higher level during the upcoming shift in the marketplace or economy. With cash flow investing, regularly evaluating the current portfolio makes it possible to avoid decreases that may lead to a negative cash flow and undermine the investor’s overall financial plan.

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