A positive cash flow real estate means that you have surplus after enumerating and deducting from the rental income all costs accompanying an investment property. Whether the rental property is a residential or a commercial rental, planning and abiding by the procedures poses a good strategy.
While it is a great way to make money upfront, ensuring positive cash flow real estate can yet be assiduous. As you start considering real estate for investment, first, assess whether or not you are suitable to be a landlord. Possessing excellent management skills will additionally expedite your learning and help you make gains as fast as a lightning. Follow the instructions outlined below to help you devise an investment plan for a nourishing and profit-making journey.
Location Is Key to Having Positive Cash Flow Real Estate
Earning an income from your rental property while enjoying a surplus can help you get more savings, thus allowing you to invest in additional income properties. First and foremost, find an investment property in a prosperous location. Need you not to neglect this factor, as it is conducive to having positive cash flow real estate. Assess the local housing market through a real estate market analysis and scan areas that enjoy the most investment opportunities. It is encouraged that you do not base your real estate investment decision on your personal preferences but rather on your needs as an investor. While buying an investment property near your home can be of convenient, it may not be a profitable investment. After all you are trying to accommodate the preferences of tenants to consequently earn you more profit. Thus, sometimes out-of-state real estate investing is sometimes the best choice.
Related: How To Budget For An Investment Property and Cash Flow
The type of tenants that you are trying to attract can mold your preferences. On balance, investment properties that score high in rental income include those close to hospitals and educational institutions. Note that students and employees drive rental demand, while owner-occupiers drive resale demand. Since you are concerned with positive cash flow real estate, finding a location that enjoys the most amenities and facilities is the pith.
On a final note, be mindful of opportunities that may arise and assess each carefully. Find what’s attractive to potential tenants and make your purchase based on that.
Related: 5 Ways To Create A Positive Cash Flow Income Property
Type of Property Will Yield a Positive Cash Flow
What immediately follows a good location in the factors contributing to positive cash flow real estate investments is the prospects within each neighborhood. You can have positive cash flow real estate if you strategically select a property. Confounding and not understood by many, the type of property you intend to purchase will determine your investment profitability. Consider purchasing a commercial property if you have landed a property near professional centers. A job growth will contribute to a more positive cash flow.
While if you plan to purchase a residential property, assess the opportunities that will make you more money. Consider multi-family units, duplexes, or triplexes. This means that you will not be only relying on one source of income, but two or more. Look for houses that have a garage and a basement that you can rent out separately.
Another option is subdividing an income property. You can purchase a particular real estate property and divide it into units, thus significantly adding to your positive cash flow real estate. While subdividing can be an optimal idea for many, it can be taxing and often unlawful. To avoid breaking any laws, it is recommended that you search zoning regulations for the area. Contact your local area council or municipality, and inquire about the procedures for getting an approval. Plan accordingly, as council approval may take some time.
Math Is Key to Having Positive Cash Flow Real Estate
Differentiating between capital growth and positive cash flow real estate prior to your investment is important. When you are buying an investment property for capital growth, you will not be earning profit instantly. In fact, you expect to incur losses at months as you wait for the rental property to appreciate. Although you will not be making monthly rental income, the property’s value will double over time. While investing for capital growth requires patience, it can be less burdensome as compared to having positive cash flow. Investing for a positive cash flow real estate, on the other hand, asks that you do your due diligence. That’s where all the numbers start crunching down.
Conducting investment property analysis will advance you to use discretion in selecting a rental property. Enumerate all expenses to conclude profitability and forecast the property’s future cash flow and growth. First start by looking into funding and return on investment measurements such as cash on cash return, capitalization rate, and interest rate. If you plan to get financing for your rental property, understand clearly the rates and the application of getting a mortgage. It is important to have a good credit score in order to qualify for a mortgage. You should consult with a real estate agent, as he/she will help you through the real estate investing process.
Furthermore, search the area’s occupancy rates, average rent prices, and utility prices. Higher utility costs can lower your profit margins. Other expenses that you should be chary of include damage, maintenance, inspection, management, legal costs, and property taxes. Assess these expenses carefully, as they will foretell whether or not you will have positive cash flow real estate.
Because breaking down the expenses is important for a positive cash flow real estate, Mashvisor created an investment property calculator for you. Mashvisor’s Airbnb calculator allows you to calculate cash on cash return, capitalization rate, and positive/negative cash flow. It helps you find the optimal property type and rental strategy by allowing you to narrow down your search criteria for a certain neighborhood. Visit Mashvisor to enjoy Mashvisor’s rental property calculator and the other features that it offers.
Related: How to Find Positive Cash Flow Properties
Having a positive cash flow will not only pay out the mortgage and/or supplement your income, it can also increase your borrowing power. Banks feel more at ease when you have more than one source of income. Luckily, we have outlined for you the factors that will increase your profit margins and earn you a positive cash flow. Make sure to take advantage of the pool of knowledge Mashvisor’s search engine and calculator have to offer.