Unlock The Secrets of Cash Flow Investments: A Guide To Generating Passive Income Through Real Estate Investing

Have you ever dreamed of earning passive income to achieve financial freedom and create a meaningful and intentional life by design? Real estate investing offers a powerful strategy to generate a steady stream of income through cash flow investments.

In this comprehensive guide, you’ll learn the secrets to unlocking the benefits of cash flow investments through real estate, providing you with the financial flexibility and stability you’ve always desired.

Discover how real estate investments generate cash flow, explore the top passive real estate investments, and dive into strategies for maximizing your cash flow returns. By the end of this journey, you’ll have a solid understanding of cash flow investing and how it can transform your financial future.

Key Takeaways

  • Cash flow investing is a powerful strategy for generating passive income and financial flexibility.

  • Real estate investments can provide regular income through various channels, including preferred equity, common equity, select-service hotels, multifamily, more.

  • Preferred equity offers investors fixed returns with reduced risk compared to other real estate investments.

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The Power of Cash Flow Investing

Three women investors looking at a financial report, discussing their cash flow investments

Cash flow investing is a strategy that focuses on investing in assets that generate consistent income, such as dividend stocks, real estate, and high-yield savings accounts. Among the best cash flow investments, this powerful approach to investing offers numerous benefits, including financial flexibility, lifestyle options, emergency funds, and diversification. One common cash flow investment strategy is to combine these assets for optimal results.

Utilizing the power of cash flow strategies allows for the creation of a stable income stream, which could eventually lead to replacing your income from your primary job, thus enabling a more flexible lifestyle and effective management of cash flows.

In the following sections, we’ll discuss various aspects of cash flow investing, including:

  • Financial flexibility

  • Lifestyle options

  • Emergency funds

  • Diversification

These segments demonstrate how this effective strategy can revolutionize your financial situation and enhance your quality of life.

Financial Flexibility

The cornerstone of cash flow investing is the generation of regular income through rental properties, real estate syndications, dividend stocks, or high-yield savings accounts. This income enables investors to cover expenses and reinvest in other investment opportunities, ultimately increasing their financial flexibility.

For example, by investing passively in a real estate syndication, you can use the income generated to cover some of your family’s expenses, maybe go down to part-time work, or invest in other assets, to further diversify your portfolio.

Real estate investments, in particular, can significantly impact financial flexibility. By providing a steady stream of income, real estate investments help investors maintain financial stability and flexibility.

Furthermore, positive cash flow from real estate investments can be reinvested into additional rental properties, real estate syndications, or other investment opportunities, such as the stock market, allowing investors to diversify their income streams and increase their financial flexibility.

Related: FIRE – Financial Independence Retire Early

Lifestyle Options

Imagine having the financial independence to retire early, travel the world, or pursue your passions without worrying about money. It’s a dream come true, right?

Cash flow investments, such as real estate and dividend stocks, can enable such lifestyle options by generating passive income. Financial independence, in relation to common cash flow investments, is the state where one’s income generated from investments is sufficient to cover living expenses without the need for active work or employment.

By learning how to earn passive income through these investments, you can achieve this level of financial freedom and thus create your own meaningful and intentional life by design, whatever that looks like for you.

By successfully investing in cash flow assets and utilizing the free cash flow metric, you can achieve:

  • Financial freedom

  • Reduced workload

  • Improved quality of life

  • More time with your family

  • Increased flexibility and choices

  • The opportunity to increase your giving and philanthropy

As you build your wealth through cash flow investments, you can generate income to fund your lifestyle and pursue your dreams without the burden of financial stress.

Related: How To Quit Your Job Through Investing In Real Estate

Emergency Funds

Life is full of surprises, and having a safety net for unexpected expenses is essential. Cash flow investments can play a vital role in building emergency funds by providing a reliable source of income that can be allocated to unanticipated expenditures. Financial experts typically recommend setting aside three to six months of expenses in an emergency fund.

Active real estate investors (i.e., those investing in rental properties or other assets where you’re actively involved) should prioritize building an emergency fund for property-related expenses.

By setting aside a portion of the rental income each month (typically 10-15% of the overall budget), you can create a financial buffer for unexpected expenses such as repairs, vacancies, or other financial emergencies that may arise in real estate investing. This emergency fund can help you maintain the financial health of your investments and provide peace of mind.

P.S. As commercial real estate syndicators, we do the same thing for each asset we invest in. We set aside a healthy amount of reserves in order to maintain the health of the asset in the face of unexpected expenses and to protect investor capital.

Related: What If You Lost Your Job Today? Why Building Passive Income Can’t Wait

Diversification

Diversification is a critical component of cash flow investing. By investing in a variety of cash flow assets, investors can minimize their risk and amplify their potential for consistent returns. A well-diversified cash flow investment portfolio may include:

  • Multifamily real estate syndications across multiple asset classes and markets

  • Real estate syndications outside of multifamily (e.g., hotels, self-storage, etc.)

  • Preferred equity investments

  • Stocks, bonds, and money market funds

This provides investors with exposure to various sectors and asset classes that can help mitigate risk and enhance the likelihood of steady returns.

It is evident that diversification is a key element of cash flow investing, as it helps to mitigate risk and enhance the possibility of secure returns. Investors can reduce risk and boost their potential for consistent returns by diversifying their cash flow asset investments.

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How Real Estate Investments Generate Cash Flow

Goodegg Investments team members reviewing a potential commercial real estate acquisition deal

Many investors find that real estate investments are a great way to generate cash flow, largely because of the ongoing and fairly steady monthly income.

Take a rental property, for example. Let’s say you purchased in a single family home and were able to rent it out for $1,500 per month. Let’s say that the expenses for the property (including mortgage, taxes, insurance, maintenance costs, etc.) add up to roughly $1,300 per month.

That means that this rental property would generate roughly $200 in free-standing cash flow per month, which means money in your pocket to pay for groceries, travel, and other personal expenses.

Now, $200 per month by itself isn’t a life-changing sum. But once you build multiple streams of $200 per month, now you’re on to something.

Now you can start to think about reducing your workload to part-time or planning your eventual exit from your job altogether. You would take a year off and travel with your family. You could quit your job and focus on your passion project, perhaps turning it into a business. The world is your oyster.

Related: How To Invest $10k, $25k, Or $50k In Real Estate

Passive Real Estate Investing

Now, if the idea of being a landlord doesn’t exactly thrill you, you should know that the same basic model applies to investing passively in real estate (you know, if you don’t want to deal with tenants, termites, and toilets).

Through a real estate syndication (group investment), you can pool your money together with a group of other investors and purchase a commercial real estate asset, like an apartment building, together.

The general partners or sponsor team would do all the heavy lifting of managing the asset, while you get to sit back and enjoy the cash flow and potential gains when the asset eventually sells.

As an investor in a real estate syndication, you would share in the free-standing cash flow just as you would with a rental property you were to manage yourself – but all without having to do any of the work required in managing the asset.

Related: This Is Where The Cash Flow Distributions From A Real Estate Syndication Actually Come From

Cash Flow Vs. Gain

When you’re thinking of investing passively in real estate syndications, one of the first things to consider, especially as it relates to cash flow, is what’s most important to you.

Is steady monthly cash flow most important? Or is the potential for a greater gain or overall return down the road more important? Do you need the money now, or are you open to waiting, in exchange for potentially higher returns?

Let’s say you’re retired and have a healthy nest egg but want to supplement your monthly retirement funds through cash flow. You’re willing to forgo the possibility of upside down the road in exchange for steady cash flow now.

On the other hand, let’s say you’re in your 40s, and both you and your spouse are at the height of your careers. You have no intention to quit, but you want to ensure that your money is working hard for you. In that case, you might prioritize the gain and overall return over steady cash flow.

Most likely, you’ll probably be somewhere in the middle, where some amount of cash flow is meaningful to you (though you may not need it to survive), while the potential upside is also important and even thrilling.

Your goals and priorities may change over time, but it’s important to take time to reflect on what’s most important to you – cash flow, gains, or a hybrid – so you can find the right investments to meet your goals.

Related: A Look At Cash Distributions And Accrued Income Over The Lifecycle Of A Deal

Risk Tolerance

In addition to considering your priorities related to cash flow vs. gains, it’s also important to consider your risk tolerance.

If the worst case came to fruition and you were to lose some or all of your original investment, how would that impact you? Would you be able to stomach that and move on, or do you need the assurance that, even if you don’t make any money, at least your original investment is safe?

Risk may not be as sexy as cash flow, but nevertheless, it’s a very important thing to consider as you make your investment decisions. Let’s take the same examples as above, with the retiree and the couple in their 40s.

In the case of the retiree, their risk tolerance is likely pretty low. They’ve worked their whole lives to build up their nest egg, and they no longer work a full time job. As such, they want to make sure that, at the very least, any capital they invest is preserved and protected – that they don’t lose any money.

With the couple in their 40s, they generate strong monthly income through their jobs, so they’re willing to take on more risk in return for a potentially higher reward. If they were to lose some capital through an investment they made, they would be able to recoup that over time.

Related: Investing Your 401(k) In Real Estate

Preferred Equity Investments – Fixed Monthly Cash Flow With Lower Risk

Okay, now let’s put it all together.

Let’s say you’re in the camp where cash flow is a very high priority for you. You want strong, fixed monthly returns today, rather than the potential for greater gains down the road.

When it comes to risk, you have a fairly low appetite for risk. If you had to choose, you’d rather take lower returns if it meant that you could ensure your money was safe.

In this case, an investment in something like preferred equity might make sense.

With preferred equity, you get a priority position in the capital stack, just behind the senior debt but ahead of common equity investors. The reason this lowers your risk is because you get your cash flow distributions first, before common equity investors.

With preferred equity, you can typically expect to see fixed monthly returns that are higher than common equity investors. In exchange, you typically forgo the potential for greater upside gains, as well as the tax advantages common equity investors get.

Common Equity Investments – Higher Returns, Moderate To Higher Risk

If, on the other hand, you’re willing to take on more risk in exchange for the potential for higher overall returns, an investment in common equity might make more sense.

Common equity investments involve taking ownership of the property, enabling investors to benefit from the potential appreciation and profits of the property. However, they also entail the risk of loss if the property does not perform as expected.

With common equity, you typically have the opportunity for a higher overall return that comes from a combination of both ongoing cash flow and returns from the sale of the asset. In exchange for the potential for a higher overall return, however, you do take on more risk, as your investment sits in a lower priority position in the capital stack.

Real estate syndication capital stack example showing different rates of return and risk

 

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Top Passive Real Estate Cash Flow Investments

Goodegg Investments team members discussing real estate syndication opportunities for investors

When it comes to generating passive income through real estate, some investments stand out as top performers. Here at Goodegg Investments, we’ve done over 40 syndications, giving thousands of investors the opportunity to create cash flow and build wealth through real estate investing.

Our investors have consistently told us that cash flow is a high priority. Given the current economic climate with high interest rates, however, cash flow can be tricky to find, particularly with multifamily syndications. That is, unless you get crafty and resourceful.

When it comes to cash flow, we’ve found that preferred equity is the top option for generating fixed monthly cash flow. Beyond that, investments in already cash-flowing assets like select-service hotels can also generate strong investor cash flow, albeit often through quarterly rather than monthly distributions.

As for multifamily, in the current financial landscape, finding consistent cash flow through common equity multifamily syndications can be challenging. That’s why investing in multifamily via preferred equity can be a great alternative.

This segment examines each of these top passive real estate cash flow investments, highlighting their unique characteristics, benefits, and reasons they merit a position in your investment portfolio.

Preferred Equity

Preferred equity syndications offer the following benefits:

  • Fixed rate of return

  • Priority position in profit distribution

  • Reliable income stream

  • Stability

  • Reduced risk profile compared to other real estate investments

Preferred equity investments in real estate generate cash flow through interest payments, either current or accrued. This type of equity investment offers investors certain privileges in exchange for their investment, such as priority in cash flow distributions and a fixed rate of return.

The interest payments can be what’s called “current pay,” meaning they are paid out regularly during the term of the investment, or “accrued,” which means they are disbursed when the preferred equity is “called” – that is, when the deal is refinanced or sold.

The interest rate for preferred equity investments is influenced by factors such as market interest rates, credit ratings, and the yields of comparable publicly traded securities.

It is important to note that changes in interest rates may also affect the market price and value of preferred equity investments. That’s why right now – with relatively high interest rates – preferred equity can be a great investment.

Investing in preferred equity syndications allows for the benefits of a consistent income stream, priority in profit distribution, and the possibility for capital appreciation. These investments can be a valuable addition to your cash flow-focused portfolio, providing you with a predictable and stable return on investment.

Select-Service Hotels

Select-service hotels – like Homewood Suites, Holiday Inn Express, and SpringHill Suites – are those that offer limited amenities (think self-serve market rather than full-service restaurant) and thus are able to operate fairly efficiently.

Often, select-service hotels are geared toward business and extended stay travelers, which can mean that they are less susceptible to the ups and downs of the market as luxury hotels geared toward tourism travel.

When investing in select-service hotels, the key is to find assets that already produce strong cash flow as-is. Revenue streams for hotels may include:

  • Room rentals

  • Food and beverage

  • Event space rental

  • Spa and wellness services

  • Retail and merchandise

  • Parking

  • Ancillary services

By investing in hotel syndications, investors get the opportunity to diversify into a new asset class while also reaping the benefit of strong cash flow and tax benefits.

For the hotel investments in the Goodegg Portfolio, we have been able to generate annual cash flow of around 9-11%+, starting right away in year 1. It’s important to note, however, that this cash flow is paid out quarterly, not monthly, so if you’re looking for regular monthly cash flow, preferred equity might be a better fit.

Multifamily Syndications

Multifamily syndications provide the following benefits:

  • Cash flow through rental income from multiple units

  • Stability and the potential for appreciation

  • Potential for long-term capital appreciation

  • Portfolio diversification across different asset classes, business plans, and markets

By investing in multifamily syndications, you can generate cash flow through rental income, benefit from the stability of multiple tenants, and potentially enjoy the appreciation of the property over time. These investments are a desirable source of passive income in real estate investing, providing you with a solid foundation for financial growth.

It’s important to note that, in the current economic climate, cash flow – particularly in years 1-3 of a common equity investment into a multifamily syndication – can be sparse. You might be looking at 2-4% cash flow, or even no cash flow in the early years.

Thus, if you’re looking for cash flow, investing via preferred equity into a multifamily asset might be your best option. As mentioned above, pref equity provides fixed monthly returns and lower risk than a common equity investment – while still giving you the opportunity to invest in strong performing multifamily assets.

Related: Demystifying Multifamily Returns – Income Vs. Accruals

Check Out Our Open Investments

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Strategies for Maximizing Cash Flow Returns

To leverage the full potential of cash flow investments, it’s beneficial to employ strategies that can enhance your returns. Key strategies include portfolio diversification, due diligence, and maintaining a long-term perspective in your investments.

The following sections will further elaborate on these strategies, helping you to maximize potential cash flow returns, mitigating overall risk, and reaching your financial goals.

Portfolio Diversification

Diversifying your portfolio across various cash flow investments reduces risk and increases the potential for stable returns. Here are some ways to achieve diversification:

  • Invest in different property types

  • Invest in different parts of the capital stack (preferred equity vs. common equity)

  • Explore different markets and business plans

  • Consider different investment vehicles

  • Balance your portfolio with other asset classes

By following these strategies, you can create a well-rounded and diversified portfolio that can weather market fluctuations and provide consistent returns.

On top of real estate investments, incorporating investments such as:

  • Stocks

  • Bonds

  • Mutual funds

  • Exchange-traded funds (ETFs)

…can further enhance your portfolio’s diversification. This approach helps to mitigate risk and potentially maximize returns by not relying solely on a single type of property or market.

Due Diligence

Conducting thorough due diligence is essential to ensuring that you invest in high-quality assets with strong cash flow potential. This process involves:

  • Researching and analyzing a potential investment

  • Examining the property

  • Analyzing the market

  • Evaluating the sponsor / management team

  • Reviewing the financials of the investment

By following these steps, you can make informed investment decisions and increase your chances of success.

Conducting comprehensive due diligence enables making decisions that both reduce risk and enhance returns. This process helps you identify potential risks and advantages related to the investment, ensuring that you make a well-informed decision that aligns with your financial goals.

Long-Term Perspective

Maintaining a long-term perspective allows investors to:

  • Weather market fluctuations

  • Benefit from the compounding effect of reinvested cash flow

  • Capitalize on long-term appreciation

  • Take advantage of tax benefits and other incentives that may be available in the long run

A long-term approach to real estate investing enables investors to benefit from these advantages.

By focusing on the potential growth and value appreciation of the property over an extended period, investors can reap the benefits of the long-term stability and income generation that real estate investments can provide.

Check Out Our Open Investments

Want to invest alongside us? Take a look at some of our current and upcoming offerings.

see open deals

 

Spotlight On: Preferred Equity Investments

Within the sphere of cash flow investments, preferred equity investments emerge as a compelling option, especially in the current economic climate, courtesy of their fixed rates of return and priority in profit distribution.

These investments provide investors with a predictable income stream, lower risk, and the potential for higher returns compared to multifamily investments in the private equity sector.

This segment scrutinizes preferred equity investments, detailing how they generate cash flow, their fixed rate of return, and their advantages over new acquisition multifamily investments.

How Preferred Equity Generates Cash Flow

Preferred equity generates cash flow through a fixed rate of return, providing investors with predictable income. This type of investment has priority over common equity for cash flow distributions, ensuring that preferred equity holders receive payment before common equity holders when it comes to cash flow from the property.

This predictability and stability make preferred equity investments an attractive option for cash flow-focused investors who value a consistent income stream and the potential for higher returns compared to common equity investments.

Fixed Rate Of Return

Fixed rates of return offer stability and predictability, making preferred equity investments attractive for cash flow investors. These investments are less subject to market volatility and interest rate changes, providing a higher degree of security and enabling investors to plan and budget with greater accuracy.

Investing in preferred equity with a fixed rate of return brings about a stable income stream and reduced risk making it a worthy addition to your cash flow-centric portfolio.

Pref Equity Vs. Multifamily Investments

Preferred equity investments can provide higher returns and lower risk compared to new acquisition multifamily investments, in the current stage of the market cycle, making them a valuable addition to a cash flow-focused portfolio.

These investments offer predictable income through fixed dividend payments and priority in profit distribution, which can be especially appealing to investors who prioritize a reliable income stream.

Incorporating preferred equity investments into your cash flow-centric portfolio offers several benefits:

  • Consistent income stream

  • Reduced risk

  • Potential for capital appreciation

  • Diversification of investments for maximum returns

Summary

Cash flow investing in real estate provides a powerful strategy for generating passive income and achieving financial freedom. By focusing on high-performing investments such as preferred equity and select-service hotel syndications, investors can maximize their returns and achieve their financial goals.

Implementing strategies like portfolio diversification, due diligence, and maintaining a long-term perspective allows investors to unlock the full potential of their cash flow investments.

Embark on your journey to financial freedom through cash flow investing in real estate, and transform your financial future with the power of passive income.

Related: Watch What Happens When You Invest $50k A Year In Real Estate Syndications

Frequently Asked Questions

What is the best investment for cash flow?

There’s no single investment that is the best fit for everyone. To find the right opportunities for you, assess how important cash flow today vs. long-term gains are to you, as well as your level of risk tolerance.

What is cash flow investing?

Cash flow investing is an investment strategy that involves regularly receiving cash distributions from investments, such as preferred equity investments. This way of investing can help to generate a steady income stream.

What is an example of a cash investment?

Cash investments such as money market accounts (MMAs) and certificates of deposit (CDs) offer investors a temporary place to keep their cash while researching other investment products.

What are the benefits of cash flow investing?

Cash flow investing offers investors financial flexibility, lifestyle options, emergency funds and diversification, making it an attractive strategy.

Check Out Our Track Record Of Success

Curious whether we can actually do what we say we're going to do? Compare projected versus actual returns in all the deals we've exited to date.

download track record

 

Next Steps

If you’re looking to invest in real estate syndications to generate strong ongoing cash flow returns, we invite you to join the Goodegg Investor Club, so we can keep you in the loop on opportunities to invest alongside us.

You can also check out our open deals page to learn more about our current or upcoming opportunities.

Learn More

If you’re not yet ready to invest but are curious about how all of this works, we invite you to dip your toe in the water with us through our free 7-day email course – Passive Real Estate Investing 101. You can also get a copy of our book – Investing For Good – or check out our Life & Money Show Podcast.

To learn more about us and our experience, be sure to download a copy of our track record, which shows the projected and actual returns we’ve achieved across all the deals we’ve exited to date.

Connect With Us

If there’s ever anything we can do to help you on your journey, feel free to email us at [email protected] or call / text us at (888) 830-1450

Want To Invest With Us?

You're invited! Join the Goodegg Investor Club to get access to our open investments and to stay in the loop on upcoming opportunities.

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