Every real estate investor is driven by the same motivation – to make money in real estate. Property investors make money in real estate mainly through two ways: cash flow and appreciation. In this article, we’re focusing on cash flow investments as the key to successful real estate investing.
Even if you’re interested in making money through long-term appreciation – holding the investment property for a long time until its value increases so you can sell it for a high profit in the future – you should still aim to generate positive cash flow from your rental property. Otherwise, you’re actually losing money instead of making money from your income property, which is obviously something no real estate investor wants. So, what are cash flow investments, why are they the key to success, and how can a real estate investor find them? Let’s find out!
What Are Cash Flow Investments?
In the simplest terms, cash flow is the profit that property investors make after calculating the difference between the monthly rental income and the monthly expenses of the rental property. Positive cash flow investments generate a rental income higher than monthly expenses. On the other hand, negative cash flow investments mean the money used on the rental property exceed the profits it generates, meaning a real estate investor is actually losing instead of making money from this income property.
Cash flow is one of the metrics used in real estate investing to analyze an income property and determine its profitability. Property investors should estimate the potential cash flow of investment properties before making a purchase to ensure they’re positive cash flow investments.
Why Are Cash Flow Investments Key to Success?
As mentioned, cash flow investments are generally a sign of successful real estate investing. But why so? The first reason for this is that cash flow pays for property investors’ expenses such as mortgage payments, operation costs, property taxes, repairs, and maintenance. In addition, when monthly income exceeds monthly expenses, it means the rental property is generating passive income! Not only that, but it also allows property investors to increase their rental income over time. Overall, positive cash flow investments are key to successful real estate investing because they yield higher returns on investment!
Related: 5 Key Factors for a Successful Real Estate Investing Career
How To Find Cash Flow Investments?
So, now we’ve covered what are cash flow investments and why they are important for a successful real estate investing career. The last question remains how can a real estate investor find them? Let’s take a look at the best strategies to find cash flow investments.
Select the Right Location
As a real estate investor, you should know that location plays an important role when it comes to anything real estate, including positive cash flow investments! Location determines property prices, rental income, operation costs, and supply and demand – all of which are factors that determine the cash flow of an income property. Thus, in order to find the best cash flow investments, look for locations that have a high demand for real estate investing, reasonable operation costs, and high rental income. Investment properties in such locations are profitable and attract tenants (which are the main source of rental income).
Your best chances of finding such locations come with performing a real estate market analysis. Alternatively, make use of Mashvisor’s investment property calculator! Our investment property calculator allows you to search for and analyze investment properties in any state, city, and neighborhood across the US real estate market to find the best cash flow investments within minutes. Basically, Mashvisor will save you tons of time by performing a real estate market analysis for you!
To start looking for and analyzing the best investment properties in your city and neighborhood of choice, click here.
Select The Best Type of Investment Property
The world of real estate investing is vast and has different types of investment properties for a real estate investor to choose from. There are single-family homes, multi-family homes, townhouses, commercial real estate properties, etc. Naturally, each type of investment properties generates different cash flow. Thus, to find the best positive cash flow investments, property investors need to explore these different alternatives. In general, multi-family homes consist of more than one housing unit, nonetheless, managing this type of investment properties yields lower costs per unit than single-family homes. As a result, you can say that multi-family homes are one of the best cash flow investments.
Related: What Is the Best Type of Investment Property in the Real Estate Market?
Consider Airbnb Rentals
Airbnb allows property investors to rent out their investment properties for short-term periods. Depending on your location, Airbnb rentals could generate a higher cash flow and yield a better return on investment! This is why they’re considered some of the best cash flow investments. You can use Mashvisor’s Airbnb calculator to see the difference between the rental income, the cash flow, and the return on investment between traditional and Airbnb investment properties! Click here to start analyzing!
However, before you start renting out your rental property as an Airbnb rental, make sure to check if Airbnb is legal in your real estate market.
Related: The 5 Most Profitable Airbnb Locations According to Mashvisor’s Investment Property Calculator
Select The Best Financing Method
A real estate investor has many options to choose from when financing the purchase of a rental property. These include a mortgage loan, private money, hard money, partnership, all cash, etc. Whichever financing method you go for will affect your cash flow. Therefore, in order to have positive cash flow investments, property investors need to analyze their financial abilities, explore all possible financing options, and understand the requirements and results of each option.
Take Advantage of Property Tax Deductions
In real estate investing, some of the costs associated with owning an income property are tax deductible. These include interests, depreciation, repairs, travel, etc. These deductions cut expenses and lead to an increase in cash flow! Thus, in order to have cash flow investments, make sure you study the local taxation law in your real estate market before buying an income property and make sure you take advantage of possible deductions.
Manage Your Property Yourself
Our final tip to ensure cash flow investments is to manage your rental property on your own. Although hiring a professional property management has its advantages since they take care of responsibilities that property investors dread, these are not cheap and will definitely affect your cash flow. True, managing an income property takes time and energy, but it’ll save you a ton of money and your cash flow will go up!
Cash Flow Investments – The Bottom Line
The above-mentioned are some strategies to help you find the best cash flow investments. However, keep in mind that the key is to get yourself a good investment property calculator and explore all available options. Sign up with Mashvisor to get full access to our investment property calculator and find the best properties in any state, city, and neighborhood of your choice any time! To learn more about our product, click here.
To start your 14-day free trial with Mashvisor and subscribe to our services with a 20% discount after, click here.