Making money in real estate is a lot simpler than you think. All you need to do is buy a positive cash flow investment property.
The real question is: How do you actually find a positive cash flow income property in today’s US housing market? There are several answers to this question. However, researching investment properties to find the best deal is the general path to take. This involves using real estate market research tools and some industry insights to gain more information about the market you are interested in.
That might sound complicated. So to get you started on the right path, Mashvisor presents you with the best tips to find positive cash flow income properties when investing in real estate.
Stop Looking in Big Cities and the Expensive States
Stepping away from big cities and expensive states is a great way to ensure buying positive cash flow income properties. Big cities and expensive states such as California and New York have extremely overpriced income properties. While researching investment properties, you may notice that even small income properties might end up costing millions in these areas.
You might think it’s an issue then if you live in a location like this. However, you should stop thinking that you are confined to investing in the area you live in. If you live in an expensive state, start investing in a less expensive area even if it is far away. With today’s technology, you can easily find and manage an investment property from a distance to ensure it produces positive cash flow. Don’t limit yourself with a geographical location and start thinking outside of the box when you invest in real estate.
Start looking at suburban and even rural properties. They will cost a lot less to buy and will usually have a very good occupancy rate; this means money will always be coming in.
Related: Buying a Rental Property in the City vs. Suburbs
Avoid High-Risk Investment Properties
Many believe that in order to make money in real estate, you need to take risks. While this is true in some cases, it is definitely not true when the income property is high-risk and unresearched.
High-risk investment properties refer to income properties that have the potential to yield a very high return on investment after some time, but low cash on cash return at the beginning of the investment. These properties include fix-and-flip properties, commercial or hotel properties, and in many cases, this includes short-term rental properties. Investors who buy these types of properties often bank on the property’s appreciation value to get a good return on investment.
These investment properties are considered high-risk because they require a lot of spending to get the property ready to make a profit or rental income. They are also properties which may not have stable occupancy rates. This means that many weeks you may be paying for the rental expenses out-of-pocket.
If you are looking for consistent positive cash flow in today’s US housing market, try sticking to traditional rental properties.
Look for College Towns
Any good real estate investor knows that a big part of creating a positive cash flow when renting is making money as soon as you get ownership of the property. Any time you have investment properties without tenants, you are actually creating negative cash flow. Essentially, without tenants, you will be paying to own your rental properties. The key here is to attract tenants as soon as you buy your property, and to constantly have rental income coming in.
One of the best ways to do that is to rent to college students. A college town and any suburban area around it will always be filled with prospective tenants looking to find a good deal. The income properties in suburbs near college towns are also typically affordable to buy.
Related: College Towns: The Best Places to Buy a Rental Property
Think About Multi-Family Homes
The US real estate market is changing due to the cultural change we are experiencing. Previous generations, such as baby boomers, made it their life goal to own a house. Today, however, baby boomers, millennials, and even generation Z are choosing to avoid owning single-family income properties, and instead opting to rent in multi-family units.
The elderly baby boomer tenants are whom you need to be targeting for your positive cash flow investment properties. Elderly tenants will be there long term, and will typically always pay their rent, giving you constant and positive cash flow. The combo of a multi-family home + retirees= positive cash flow!
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Use a Heatmap and a Rental Property Calculator
Regardless of the type of income properties you are looking to buy, to ensure positive cash flow, you must use a heatmap and a rental property calculator.
A heatmap will help you find the most profitable neighborhoods. This type of real estate market research tool allows real estate investors to customize the criteria of the income properties they are searching for. That way, they can narrow down which neighborhoods will have positive cash flow properties.
The rental property calculator is another essential tool to use. The best part about this tool is that it allows real estate investors to perform a thorough investment property analysis. It helps to calculate the potential rental expenses and cash on cash return of the investment property. This means that you can calculate your cash flow easily. This will help you to determine whether you’re looking at a negative cash flow or positive cash flow income property.
Mashvisor’s Airbnb calculator not only estimates the earning potential of a property; it also lets you know whether the property is optimal as a long term or short term rental.
Related: Buy a Rental Property Calculator to Boost Your Real Estate Career
The Bottom Line
Creating a positive cash flow often requires finding and buying the best low-risk investments. Positive cash flow is all about constantly bringing in more money than you are spending on your income properties.
Don’t be fooled by the perception that real estate investing will make you rich in no time. In fact, positive cash flow will only yield you about four or five percent cash on cash return each year. The key here is keeping that rate up all the years that you own your investment property.
To find out more about real estate investing, visit Mashvisor today.