Let’s talk best cash flow investments. You and I both know, at the end of the day, making money is key to any investment- especially rental properties.
Buying an investment property typically involves an investment property analysis. I mean, if you care at all about the future of this investment property, you’d do one. That is, if you want to find the best cash flow investments. It’s done to analyze the performance of the property in relation to its value. You look at things like property cost, rental income, rental expenses, and so on to find the property’s cash flow. You also evaluate the net operating income of the property which is useful for analyzing multiple investment properties at once.
To better understand the title of this blog, ‘rental properties- the best cash flow investments’, let’s break it up into three parts:
- Real Estate Investments
- Rental Properties
- Cash Flow
Real Estate Investments
Cash flow can be achieved from other types of businesses. So why is real estate considered to have the best cash flow investments? A lot of people have been investing in real estate to diversify their portfolios. Real estate investments are seen as prime investment opportunities because of the various income streams they provide. You’ve probably heard of many people who’ve ditched the stock market and continued to thrive in the real estate market. In fact, Mashvisor provides a multitude of blogs covering ways to build wealth through the best real estate investments:
Here’s a quick list of why real estate investing is a great choice:
- Appreciation: Instead of the expected depreciation of an asset, real estate property actually increases in value as time passes by. This makes rental properties great income generating assets.
- Cash on Cash Rental Yield: the percentage yield from direct rental income. The calculation takes into account expenses, taxes, mortgage payments and other costs, and divides it by the property value/cost. This yield will tell you whether you’re producing a positive cash flow or a negative cash flow.
- Leverage: All leverage involves risk, so real estate investors should understand how this affects their real estate investments. You can use leverage to increase returns. For example, you can use $100,000 in leverage assets to purchase 3 properties with down payments, instead of one for $100,000 cash. A move like this will show a high return on investment if made with the right investment properties
Related: How to Get Started in Real Estate Investing
Rental Properties
The best cash flow investments are quite clearly rental properties. They provide a relatively stable income and can be considered low risk investments. It’s a simple transaction. You provide tenants with a place to live, and they, in turn, pay monthly rent. Sounds simple enough right? It could be if you manage your property well. Managing income properties isn’t the easiest thing to figure out. Click here for more on that.
- Single-Family Homes
- Multi-Family Homes
- Townhouses
- Condos
Before realizing positive cash flow from a rental property, you first need to choose the right investments. You can do this by conducting a real estate market analysis. The concept behind this is simple. You compare similar rental properties in the same/similar neighborhoods and choose the best based on certain criteria. You can use this to check whether the value of the property you’re about to purchase makes sense compared to its rates by comparing things like the cap rate, cash on cash return, occupancy rate, etc. Find similar properties, compare them, and make the optimal investment decision based on your investment strategy. To quickly and easily find all the real estate analytics and data you need to start, sign up for Mashvisor. To start looking for and analyzing the best investment properties in your city and neighborhood of choice, click here.
Cash Flow
So, we’re down to the last topic. The most important when we’re discussing the best cash flow investments- cash flow itself. First, how to calculate cash flow:
Cash Flow= Rental Income- Expenses
#1. The first factor of the formula, the rental income, primarily depends on the occupancy rate of your property. The higher the occupancy rate, the better. This means you have more tenants, so the property is generating more rental income.
#2. The second factor is the expenses relating to the rental property. Depending on the type of property, and any special circumstances, the expenses can differ. However, they usually consist of: mortgage payments, property taxes, maintenance, utilities, and repairs.
Finding the best cash flow investments begins with this formula. If it’s positive, that’s a great start. It means that the investment property is generating a profit and there’s a good return on investment. We’ve already mentioned how Mashvisor can help in finding the best investment properties for you. Now let’s talk about how we can help in finding the cash flow of a property.
Related: How to Find Positive Cash Flow Properties
Mashvisor’s rental property calculator can calculate the cap rate, cash on cash return, occupancy rate, and cash flow of a property. Forget the manual calculations and hours spent on spreadsheets. Simply input the relative information and our calculator does all the work to find the best cash flow investments! To start your 14-day free trial with Mashvisor and subscribe to our services with a 20% discount after, click here.
The Best Cash Flow Investments
Do you own a rental property, but wouldn’t say it’s one of the best cash flow investments? Well, you may have a problem in one of these areas:
- Investment Strategy: You need to make sure you’re following the right investment strategy for your rental property. So for example, is your property a traditional rental property in an area where Airbnb properties are more profitable? Mashvisor will help you find the optimal rental strategy. To learn more about our product, click here.
- Rental Property Management: Is your property well maintained? If you’re finding it difficult to personally manage the property, maybe consider hiring a professional property manager?
- Rent: How much rent are you charging? If you have a high occupancy rate, but still aren’t generating a significant profit, the rent you’re charging may be too low. On the other hand, if your rental property is in a good location and has many potential customers in the area, but your occupancy rate is low or tenants are having difficulty making their rent payments, you might be charging too high of a rent. Both scenarios will end up in negative cash flow, which we don’t want. Click here to read about the importance of positive cash flow in income properties.
Related: How to Turn a Negative Cash Flow Rental Property into a Positive Cash Flow Rental Property
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