The host of the HGTV show “Income Property” does one thing before considering any real estate venture: a cash flow analysis.
“I will never consider an investment property without first doing a cash flow analysis,” he tells Torabi.
It ensures long term profitability, he explains: “I never want to get caught in the scenario where I may have to sell it a loss. If values aren’t what’s going up, I need to make sure there’s cash flow there so that I can profit continuously.”
This strategy fits into McGillivray’s broader business philosophy of looking to the future first and working backwards from there. As he tells Torabi:
Most people worry about the present and hope it works out for the future.
I look at the future first … I look at a property and say, ‘OK. Here’s a property that will bring in $20,000 a year in rent.’ And I’ll work back from there and say, ‘What are all my costs going to be? What is my margin going to be?’
I’ll make my decision based on the potential of future profit.
McGillivray isn’t the only one who invests for cash flow. Kelly and Chris Edwards, twin brothers who turned a single house into nearly $8 million of property, told Business Insider, “Buy where the numbers work. You buy property for cash flow, not speculating ‘this will appreciate 6% over the next 10 years.'”
After doing a cash flow analysis, it’s simply a matter of staying within budget, McGillivray says: “If I stay on budget, I’m guaranteed a profit.”