The cash flow definition is simply the amount of money coming in and out of the investment property. As a property investor, having restricted cash flow can leave you stuck and make it hard to move forward and grow your real estate investment portfolio. Positive cash flow, on the other hand, means that all your costs are covered by rent and any money left is a profit that goes directly into your pocket! Essentially, rental properties that are cash flow positive pay for themselves with money left over for a good return on investment. Which is why most real estate investors are on the hunt to find such properties.
Related: What Makes for the Best Income Properties in the Real Estate Investing Business?
If you’re trying to find a positive cash flow property for sale on the market to invest in, follow these 5 steps.
Step #1: Find a Good Rental Market
In real estate investing, location plays a big role in how profitable rental properties are. Some locations are simply more favorable for investors than others. So to find positive cash flow homes for sale, you need to first identify such a location. You might find it more convenient to buy properties in your local market or the one nearby. However, it’s best that you don’t limit yourself with a geographical location. Instead, take the time to research different markets even if they are far. Buying a rental property out of state is best if you’re not in a profitable location.
But, what makes for the best places to invest in real estate? Well, there are a number of features that the top rental markets typically have in common. First, affordability. It’s hard to find a positive cash flow property for sale in overpriced markets like California and New York. This is because expensive homes have higher mortgage payments – which have a large impact on cash flow in real estate. So if you’re looking to make money from buying rental properties, try to find affordable real estate markets to invest in.
The next important feature of the best locations is the demand for rentals. Naturally, you want to buy in an area where people want to rent your property. This allows you to have a higher rental income that covers your expenses. Other factors that suggest you’re in a strong rental market include low property taxes, job market growth, economic growth, and population growth. You don’t have to find all of these features in your housing market of choice. Locations with a good balance of these features are typically the best places to invest in positive cash flow rental properties.
Step #2: Identify the Best Neighborhood
After picking your location of choice for buying rental property, the next step is to find the neighborhood which offers the best investment opportunities. After all, rentals in different neighborhoods of the same city can have distinctly different rental income potential. So to find a positive cash flow property for sale, you need to do a neighborhood analysis on the areas that seem to be good for investing in real estate. To do this analysis, you need to have insights on the listing price and rental yield for homes in the neighborhood. This gives you a better idea of how rental properties are performing there.
Related: Neighborhood Analysis in Real Estate Investing
To help you quickly narrow down your search for the best neighborhood in your market, use Mashvisor’s Real Estate Heatmap. Simply type in your city of choice and you’ll get an overview of the neighborhoods there. Once you hit “Explore the Data”, the map will highlight the neighborhoods based on their real estate investment potential. To locate areas where you can find positive cash flow investments, play around with the filters to see which areas rank high (highlighted in green) and which rank low (highlighted in red). For example, try to find areas with a relatively low listing price and a high rental income and occupancy rate. This combination suggests that rental properties in the area are cash flow positive.
Mashvisor’s Real Estate Heatmap
To start looking for and analyzing the best neighborhoods in your housing market of choice for positive cash flow in real estate, click here.
Step #3: Start Your Rental Property Search
Once you select the best neighborhood in the market to buy investment properties for real estate positive cash flow, now it’s time to start searching for said properties. Here, there’s a number of things that a real estate investor should keep in mind.
First, you need to have a budget for the purchase price that you can afford. Then, find homes for sale that are priced within that range. Next, you need to find out what type of property is most in-demand in the area. For example, if you’re in a school district, you can expect to see that demand is highest for single-family homes. This is the type of positive cash flow property for sale that you should be looking for.
Most real estate websites will show you homes for sale in your area with a brief description of the properties. However, this is not really helpful to investors looking for positive cash flow properties as what they care about is the numbers behind the deal. As a result, we suggest using a tool like Mashvisor’s Property Finder. This tool allows you to set your investment property search criteria including your location, budget, property type, number of bedrooms and bathrooms, and more. Then, with the power of AI and the latest machine-learning algorithms, it shows you the most suitable investment properties that match your criteria AND have good cash on cash return.
Mashvisor’s Property Finder
With the Property Finder, you can find a number of positive cash flow properties for sale along with all of the relevant numbers and metrics needed to evaluate whether they’ll make good real estate investments. To use this amazing tool in your property search, sign up for a free Mashvisor account!
Step #4: Analyze the Rental Property
After finding a number of homes for sale, now you need to narrow them down and decide which one is the best positive cash flow property for sale. To do this, investors analyze each property to find the one with the highest potential for profits. Doing a rental property analysis requires you to dive deeper into the numbers behind real estate deals to get an estimation of the return on investment you can expect to earn. The most important ROI metrics include cap rate, cash on cash return and, of course, cash flow. To calculate these metrics, you need to collect data regarding each property’s rental income, monthly expenses, financing costs, etc.
You can run the numbers on your own or, alternatively, use an Investment Property Calculator to do the job for you. This is the most important real estate investment tool for anyone looking for success in the business. It uses historical and predictive data to provide pre-calculated projections of a rental property’s rate of return. If you’re using Mashvisor to find positive cash flow property for sale, you’ll get to access our Investment Property Cash Flow Calculator to analyze each and every home you find in any city and neighborhood in the US housing market.
Mashvisor’s Investment Property Calculator
As you can see, all the important ROI metrics needed to analyze rental properties (both traditional and Airbnb) are readily-calculated for you to make faster decisions. The best thing is that you’ll get a breakdown of expenses which are a huge part of the cash flow formula. If you know how to cut down these expenses, you’ll have higher chances of making positive cash flow in real estate. In addition, you can also adjust any number as you see fit. The Investment Property Calculator will then immediately recalculate the numbers to provide more accurate projections.
To learn how we’ll help you make faster and smarter real estate investment decisions, click here.
Step #5: Run a Comparative Market Analysis
When you finally come to the conclusion that you’ve found the best positive cash flow property for sale, there’s still one final step before putting your offer. Real estate investors should make sure that the house is priced reasonably and according to fair market values. The best way to do this is to do a comparative market analysis (CMA). We know what you’re thinking – “yet another analysis?” Yes, but there’s no need to worry as this one is fairly simple and can be done using Mashvisor’s calculator!
Comparative market analysis requires investors to find a few rental properties in the area that are similar to the one they’re considering to buy and which were recently sold. In the real estate investing business, these are known as real estate comps (or rental comps). Comparing the prices of these properties shows you the fair market value of your target property. Moreover, rental comps give you an idea of what rental yield and profits you can expect to pocket. All of this is important to truly ensure you’re buying positive cash flow investments. If this sounds like a daunting task, use Mashvisor to find real estate comps and run a CMA in a matter of minutes!
Mashvisor’s Real Estate and Rental Comps
Related: How to Do Comparative Market Analysis Step by Step
The Bottom Line
When done right, anyone can get rich from investing in real estate. Although finding a positive cash flow property for sale might be challenging, remember that these are the properties that are worth your time and money. By following the five steps outlined in our guide, you’ll eventually find the best homes for sale to buy for real estate positive cash flow. To save time, use Mashvisor to find and analyze positive cash flow rental properties anywhere in the US housing market. Start out your 14-day free trial with Mashvisor to get started!