Are you interested in making money in real estate? If you’re reading this blog, then we’re sure that your answer is yes! Above all, you need cash flow properties to make a profit in real estate. That begs an important question, however. What are the best real estate investments for cash flow? Read this blog to find out!
Related: What Are the Best Ways to Make Money in Real Estate as a Beginner?
What Is Cash Flow?
Before we talk about the best real estate investments for cash flow, we should clearly define what cash flow is. Quite simply, real estate cash flow is the difference between rental income and rental expenses. Cash flow can be calculated on a weekly, monthly, or yearly basis. Therefore, it is used to show how much money a rental property is making. Positive cash flow is when income exceeds expenses, yielding a profit. Negative cash flow, on the other hand, represents a net negative.
The Best Real Estate Investments for Cash Flow
So, it is clear that positive rental property cash flow is the goal of real estate investing. This brings us back to the main question of the blog. What are the best investments for cash flow? Essentially, residential and short-term rental properties are the best cash flow investments. The following 7 property types fall into these categories:
1. Single-Family Properties
There are two dominant types of long-term rental properties. The first is single-family homes. Single-family properties are the go-to for residential real estate investing for beginners. But whether you are a beginner or expert investor, single-family rentals (SFRs) are a must-have.
They are superb for cash flow. This is especially true due to their high demand among tenants which has contributed to rising rental rates in recent years.
Investing in single-family rentals is also affordable. Financing options for SFRs are very accessible and the typical requirements include a 20% down payment and a good credit score. Above all, the cash flow potential and accessibility of SFRs makes them appealing to any real estate investor.
2. Multi-Family Properties
Multi-family properties are the second most common type of residential property. When it comes to cash flow, multi-family properties are on a whole other level. Since they have multiple units, they have a higher cash flow potential than SFRs. Multi-family properties range vastly in the number of units. But whether you buy a duplex or a large apartment building, multi-family homes can be very profitable.
Multi-family properties generally produce enough cash flow so that the real estate investor can hire professional property management. This further increases cash flow positive potential since a professional manager should be able to help keep occupancy rates high and manage expenses.
The downside of multi-family properties, however, is their accessibility. Depending on how many units the property houses, multi-family homes for sale can be much more expensive than other investment property types. But most mortgage lenders view them as low-risk investments so you should be able to get a loan. And there are even ways of how to buy a multi-family property with no money which makes multi-family properties some of the best real estate investments for cash flow.
Related: Why Investing in Multi-Family Homes Is a Must for 2020
3. Townhouses
A subset of single-family homes, townhouses are excellent for cash flow investing. What exactly are townhouses? Townhouses, or row houses, are multiple units attached together. Each unit shares a wall with an adjacent unit. Renting out row houses means you’re offering more room to tenants than an apartment or condo- typically a backyard, lawn, and driveway. So you can charge high rental rates and enjoy the cash flow. Townhouses also benefit from the fact that they are typically cheaper than a single-family home.
4. Apartment Buildings
Next up on the list of best real estate investments for cash flow is apartment buildings. With their many units, they are profitable cash flowing investments. As a result, apartment rentals tend to pay off their initial investment very quickly. Passive income is also possible with apartments as it is with smaller multi-family homes. Investors may opt to hire landlords and property managers to deal with rental activity. Due to all of these reasons, apartments are one of the best real estate investments for cash flow.
5. Condominiums
Condos, short for condominiums, are multiple buildings with separate units owned by an investor. Similar to townhouses, units may share a wall. There are many reasons why condos are among the best real estate investments for cash flow. But the main reason is that condos are usually built in hot real estate markets where they will see high demand from tenants. This equals positive cash flow especially since, in the same locations, single-family homes or multi-family homes would be much more expensive.
6. Airbnb Rentals
Airbnb rental properties are also one of the best real estate investments for cash flow. Airbnb is significantly more profitable than its traditional counterparts. The main reason why is that Airbnb rentals operate on a nightly basis and you can charge higher rates based on demand. In areas with high tourist traffic, this makes Airbnb an excellent investment strategy. However, investors should make sure Airbnb is legal in their area to begin with. If it is, Airbnb is one of the best for real estate cash flow.
Related: Invest in Airbnb – It’s 100% Worth the Investment
7. Turnkey Properties
Although the previously listed properties make for some of the best real estate investments for cash flow, you may not be able to generate cash flow right away. You will have to get the property ready for rental activity after purchase. However, there are some cash flow properties that don’t have this requirement. These properties are called turnkey properties. Companies and sellers sell these already furnished properties that often come with a tenant in place! Sometimes, turnkeys are also already under the management of a professional. As a result, they are a great option for new investors who want positive cash flow immediately.
The Bottom Line
Investing in the best real estate investments for cash flow is the best thing you can do in 2020. These property types are all you need for making money in real estate.
The next step is to figure out how to find cash flow properties. Use Mashvisor’s investment property cash flow calculator. With Mashvisor’s calculator, you can find a cash flow property in any real estate market. Whether it’s an Airbnb or fourplex for sale, Mashvisor will find it all.
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