Business and Investment Center

If you have an income producing property, the amount of money you are left with at the end of your property expenses is considered cash flow.

Here is how it works . . .

Lets suppose you own a duplex and your monthly mortgage payment including taxes and insurance is approximately $1200.00.

Now lets suppose you have a tenant on each floor with a one year lease, and you charge each tenant $850.00 a month to live there. This is a total of $1700.00 paid to you on a monthly basis.

Once you have paid your mortgage of $1200.00, you are left with a balance of $500.00, this would be your monthly cash flow from the income producing property.

If you are looking to increase your monthly cash flow, one of the easiest ways to do it would be to raise the rent. This is by far one of the most effective and common ways of increasing cash flow.

Another way to increase cash flow depending on the amount of equity you have established in a property would be to use some of that investment property’s equity to purchase another income producing property.

Using the same principal of charging more than the amount of your total expenses on the property, you will once again be increasing your cash flow.

Keep in mind, when doing any kind of repairs to the home, including landscaping, make sure you save the receipts to be used as a write off. This to will help to reduce earnings, resulting in cash flow in the way of an annual tax return.

If you want some cash to increase the value of your property or to settle some pressing debts, there are home equity loans that give you this option. Loans that offer fixed interest rates usually also offer lower interest than loans that give cash back.

Most loan agreements provide the borrower with options. Loans that offer cash back against equity come with “penalty” or “redemption penalty” clauses, but they don’t force strict rules onto the borrower.

There may also be other clauses entrenched into the terms and conditions, which increases the risk on the borrower. For example, it may state that “in the event  that the loan is changed the lender shall demand the full balance owed to be settled immediately”.

Anyone who may think of getting an equity loan later should carefully consider such provisions in order to prevent a heavy financial burden.

There are some lenders, although few, who’ll provide a cash back loan with a “sliding scale” component to ease the impact of the stipulations in the “redemption” penalty. How it works is that the homeowner signs a contract agreeing to pay a specific amount in order to reduce his penalties. This agreement helps the borrower get a more favorable deal.

Under the cash back loan deal the lender offers a large sum of cash against the loan. Alternatively you get the cash back when the “setup” is done. However, remember that the money offered in the cash back loan has to be repayed. For example on a $70 000 loan you may get an extra $3 000, which you would repay with interest as is with the main loan amount.

Failure to repay this money may lead to court judgments being granted against you. Therefore, it pays to read the fine print on any contract before you sign it.