Why Focus on Door Count When Cash Flow Is the Real Concern

Real estate investors will frequently brag about how many “doors” they own; that is, rental units in their portfolio. Unfortunately, door numbers can often be misleading; what really matters for any business is cash flow as profitability.

At times, however, cash flow and property ownership can become intertwined and owning multiple doors irrespective of cash flow can be an effective means for creating long-term wealth.

Confused? Don’t be. Often rapidly appreciating areas can provide greater wealth-creation potential than simply adding doors that make $200-$300 each month without tenants, thus providing opportunities to invest further down the line. Clinging on to a real estate train that quickly appreciates might be your best strategy for quickly creating wealth as an investor – giving you more investment options in the future.

Note that most landlords in America aren’t Wall Street giants or hugely successful businesses with hundreds of doors in their portfolio – most are actually mom-and-pop owners with just a few units as supplemental income sources.

Put simply, relax if you still need to purchase your first rental unit. Don’t feel left behind in the rush touted by investment gurus to expand their portfolios by purchasing multiple properties at once; having just a few units puts you on par with most owners and turning your primary residence into a rental is generally straightforward if that is your plan.

Before embarking on your portfolio expansion plan, there are some crucial points you should keep in mind.

Your Purchase Power Will be Limited Assuming you don’t possess an impressive trust fund or have written songs for Taylor Swift or Beyonce, your purchasing power may be severely limited if you plan to purchase rental units in expensive areas. Aside from borrowing limits and daily earnings from work affecting purchasing capacity directly.

If you are an earner with substantial assets or have investors and can afford to start purchasing rental properties quickly, quickly accumulating properties in less expensive areas may help expand your rental portfolio. Both strategies have their own set of benefits and drawbacks, though.