Every real estate investor is driven by the same motivation – to make money in real estate. And how do you make money in real estate – through positive cash flow investments.
Even if you are among those investors mainly interested in long-term appreciation – to slowly get rich in real estate or to have enough income for when you retire – you should still be going for positive cash flow only. Otherwise, it means that you are losing money from your investment, and no one wants to lose money, whether investing in real estate or in stocks. But how do you make sure to have positive cash flow from your income property? Well, let’s take a look at the strategies for best cash flow investments.
1. Choose your city carefully
Location is one of the most important features of any investment property. That’s why performing a real estate market analysis to select the right city is one of the most important strategies for finding the best cash flow investments. Don’t necessarily be attracted to the hot markets because they promise high rental income. Remember that these cities would also require higher than usual property prices. Cash flow is basically income minus expenses, so even if your rental income is great, it might not be enough to compensate for the expensive rental property. When looking for the best real estate investments, it is important to consider out-of-state real estate investing options, especially if you live in an overcrowded or overpriced city. The main factor which should lead your city search is how many tenants this city hosts. Focus on cities with many universities (attracting college students), jobs (attracting millennials), businesses (attracting Airbnb), tourism opportunities (attracting Airbnb), or quiet surroundings (attracting retirees). In other words, choose a market which will attract at least one solid group of tenants.
Related: Real Estate Investing Beyond the 20 Mile Radius
Looking for the right city might sound scary and overwhelming, but Mashvisor’s investment property calculator can help you greatly in this regard. It will save you tons of time by performing the market analysis instead of you.
2. Select the right neighborhood
Once you’ve settled on a city, you should choose the right neighborhood within this city, as your next strategy for best cash flow investments. Remember that one part of a city can offer very different property prices and rental income from another part, which will result in different cash flows. Once again, you can rely on Mashvisor’s rental property calculator to guide you in your choice of a neighborhood. Simply search for your preferred city, and Mashvisor will supply the neighborhood-level data on median property prices, rental income, cash on cash return, capitalization rate, Airbnb occupancy rate, financing options, and best rental strategy.
3. Think about different types of properties
Naturally, different types of properties offer different cash flows, so your strategy for getting one of the best cash flow investments should include exploring different alternatives. Generally speaking, multi-family homes including condos tend to offer better cash flow single-family homes. One of the reasons is that managing multiple rental units yields lower management costs per unit.
4. Look into a real estate partnership
While it is good to be independent in real estate investing, it often pays off to give up some of your freedom and enter into a real estate investment partnership. It could also be an excellent strategy to get the best cash flow investments. By pulling resources together with your partners, you will be able to afford a much larger property, which as mentioned above could generate more cash flow. You could also buy several income properties, and definitely two or three rental properties generate more cash flow than a single one. If you choose your partners carefully (which you should always do), they might be more experienced and knowledge than you and direct you towards better markets and properties that you are capable of finding on your own.
5. Network
Another important strategy to get hold of the best cash flow investments in real estate is to network with other professionals. Your connections within the local real estate investing community will sooner or later prove of invaluable importance in identifying the best cash flow investments. The people from your network might be able to supply you with insights which are not available elsewhere regarding profitable markets, good neighborhoods, available properties, etc.
Related: How to Build and Maintain a Real Estate Investment Network
6. Consider Airbnb rental strategy
Even if you a traditional renting aficionado, you should think about Airbnb if you want the best cash flow investments. You can check out Mashvisor’s investment property calculator to see how different the rental income, the cash flow, and the return on investment can be for traditional and Airbnb. Actually Airbnb usually tends to be the most profitable strategy as it can generate better cash flow. But before you decide to jump into this endeavor, make sure to check out the legality of Airbnb rentals in your city.
7. Select the best financing strategy
Whether you buy a rental property in cash or with a mortgage will drastically change your cash flow. Thus, you should explore all possible financing options – depending on your financial situation – and how they affect cash flow in order to make the best cash flow investments. You can do that directly on Mashvisor’s rental property calculator, which allows you to choose among several financing methods.
8. Take advantage of rental property tax deductions
Because real estate investing is a business, there are many costs associated with owning and managing your income property – such as interest, depreciation, repairs, travel, etc. – which are tax deductable. Make sure to study the local taxation laws well before you buy your first rental property to benefit from possible deductions to the max. After all, you are looking for the best cash flow investments, and any cut in expenses will lead to an increase in cash flow.
9. Manage your property yourself
Another strategy to assure one of the best cash flow investments is to choose not to pay for professional property management and do all the fixes on your own. True, this will require a lot of time and energy, but it will save you a ton of money, which means that your cash flow will go up.
Related: How to Find Positive Cash Flow Properties
There is no clear-cut answer to the question “What are the best cash flow investments?”. It is impossible to generalize that condos are better than single-family homes; that Airbnb is better than traditional; that cash is better than mortgage; that Boston is better than Las Vegas, etc. It depends on many factors. The key is to get yourself a good investment property calculator and to explore all available options. Meanwhile, above are some strategies to help you find the best cash flow investments around.