Is that rental property really a good deal? The Cash Flow Myth makes many investors believe that any property with rent potential is automatically profitable. You’ve heard the buzz about a 50-year mortgage plan, but would that even make a bad deal good? The truth is, it doesn’t matter if the loan is 50 years or 5 years if the property doesn’t cash flow. This is the number one metric that separates professional investors from hopeful amateurs.
In this episode of the 5-Minute PRIME Podcast, host Martin Maxwell dissects the most critical, and most misunderstood, number in all of real estate. Forget appreciation; learn to hunt for cash flow.
Tune in to learn:
- Why “hope” is not a strategy and appreciation is a dangerous trap at the heart of the Cash Flow Myth.
- The critical difference between Gross Rent and real Net Cash Flow—one of the most common areas where the Cash Flow Myth misleads new investors.
- The “Four Horsemen” of expenses that most beginners completely forget (Vacancy, Repairs, CapEx, Management), a key reason the Cash Flow Myth continues to thrive.
- How to perform your first real cash flow analysis in 60 seconds using the “30% Rule”—a simple way to cut through the Cash Flow Myth once and for all.
Are you ready to stop gambling on appreciation, break free from the Cash Flow Myth, and start calculating deals like a professional investor? Subscribe now for the essential first step.
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Show Notes: Cash Flow Myth
Key Takeaways
- Hope Isn’t a Strategy: Successful real estate investors buy based on numbers, not wishful thinking about appreciation or market timing.
- Cash Flow First: A property must make money the day you close. Positive monthly cash flow is the lifeblood of your portfolio.
- The Four Horsemen of Hidden Expenses: Always budget for Vacancy (8%), Repairs (5%), CapEx (5–10%), and Property Management (8–10%) to reveal your true net cash flow.
- Appreciation Is Dessert, Not Dinner: Chasing appreciation alone can turn your portfolio into a ticking time bomb. Focus on steady, reliable returns.
- Calculate Like a Pro: Gross rent minus all expenses—not just the mortgage—is the real test of a profitable deal.
Action Step:
Use the “30% Rule” for a quick 60-second deal analysis on any property.
- Find a property’s estimated monthly rent.
- Find its estimated monthly mortgage (PITI).
- Subtract 30% of the gross rent to account for the “Four Horsemen.”
- If the final number is positive, the deal is worth investigating further.
Mentioned in This Episode
Episodes to Revisit:
- Website: Benzinga (mentioned for an article on 50-year mortgages).
- Website: REIPrime.com (A new tool for automating deal analysis, coming soon).
- Tool: Online Mortgage Calculator (to estimate PITI).
Challenge for Today:
- Select a target investment property — for example, one with a $350,000 purchase price and an estimated $2,400 gross monthly rent.
- Calculate the estimated monthly mortgage, taxes, and insurance (PITI), which for our example totals approximately $2,447 (assuming a 20% down payment, 7.5% interest rate, and $490/month for taxes & insurance).
- Apply the “30% Rule” to account for the Four Horsemen by calculating 30% of the gross rent, which comes out to $720 ($2,400 × 0.30) set aside for future expenses.
- Determine your true cash flow by subtracting all costs from income: $2,400 (Rent) – $2,447 (PITI) – $720 (Expenses) = a negative cash flow of –$767 per month.
- Conclude that this property is a financial liability that would lose you $9,204 per year, and move on to find a deal where the numbers actually work.
