If you’re looking to make money in real estate, then having positive cash flow should be your top priority. Real estate cash flow is the money you have left from your rental income after covering your rental property expenses. This means that you don’t need to keep spending money from your pocket to hold the investment property. Plus, the more cash flow you have, the higher your potential returns will be. On the other hand, if the costs of running a property are more than the income it generates, this makes it a negative cash flow property. No real estate investor wants to end up with this type of property as it means you’re losing money! How can you avoid this happening? Keep reading to learn how to achieve positive cash flow when investing in real estate.
Related: Why Is Real Estate Positive Cash Flow So Important for Investors?
#1 Search in the Right Location
Location affects each and every aspect of a rental property, including its cash flow. For example, the rental demand, rent prices, and property costs all vary from one city to another. While it might be convenient to invest in an area that’s close to you, rentals in this area may not be profitable. If that’s the case, you need to search farther if you’re looking to find positive cash flow property for sale. The best cities for cash flow properties are typically those with a strong economy, good job market, and high demand for rentals. For example, many consider college towns the best places to buy rental property because they enjoy stable rental demand. This leads to fewer vacancies and higher rents – the best combination for the generation of positive cash flow.
Fortunately, finding locations where properties are cash flow positive is easy with Mashvisor. Our Real Estate Heatmap allows you to see how rentals are performing in a city and its neighborhoods. Just enter your desired location and select the metric you want to analyze it by. The Heatmap will then show you a color-coded overview of how properties are performing according to that metric. To find a positive cash flow investment property, focus on finding locations that rank high in terms of rental income and occupancy rate, and low in terms of the listing price. This indicates that rental properties for sale in this area are cheap but in high demand. To try the Real Estate Heatmap, click here.
Mashvisor’s Real Estate Heatmap
#2 Narrow Down Property Types
After identifying the best city to buy a positive cash flow rental property, you now need to decide what type of property is best to invest in. To make the right decision, you first need to know which property type best suits the area. For example, if you’re investing in a neighborhood nearby school districts, then single-family homes are your best option. If you’re in an area were lots of millennials and young professionals are moving for jobs, you should consider a multifamily property. Next up, you need to determine your budget and the maximum price you can afford to pay for an income property without risking a default on your mortgage payments.
Related: Best Cash Flow Investments in Real Estate: How to Find Them
#3 Set the Right Rental Rate
Based on the real estate cash flow definition, the first factor that determines whether your rental property cash flow will be positive or negative is the rental income. As a real estate investor, you need carefully think about how much to charge for rent. If you charge too little, your rental income won’t be enough to cover your expenses. But if your rental rate is too high, you won’t have enough demand and the property could sit empty, making no rental income at all. Thus, a positive cash flow rental property is one that is charged correctly.
The best way to understand the best rental rate to charge for your investment property is through finding and analyzing rental comps. By comparing your property to similar ones in the area, you’ll get a sense of how much other landlords are charging. Accordingly, you can set a competitive rate that attracts potential tenants and still leaves you with profits after paying your expenses. You can use Mashvisor’s Airbnb Calculator to find rental comps. For any rental property, you’ll get a readily-available list of comps as well as pre-calculated data. As a result, you can compare your property to actual rentals in the area in a matter of minutes.
Mashvisor’s Rental Comps
To learn more about our tool and how it helps you make faster & smarter real estate investment decisions, click here.
#4 Break Down Property Expenses
The second part of the cash flow real estate formula is the rental property expenses. So, in order to achieve positive cash flow, you need to understand all of the costs and expenses of your rental property business – preferably before buying the property. This allows you to make sure you can cover these costs at first and that the rental income the property will generate will be high enough to cover then later on. When calculating your expenses, you have to include both one-time startup costs (like mortgage down payment) and recurring expenses. These include monthly mortgage payments, maintenance, insurance, property taxes, and others.
When analyzing a rental property using Mashvisor’s Cash Flow Calculator (also known as the Cash Flow Analyzer), you’ll get a breakdown of expenses readily estimated. Our breakdown and forecast of both startup and recurring costs are very accurate because it’s based on data from the real estate market and the neighborhood. We incorporate these expenses when calculating the rental property cash flow. You can also add any additional costs that you need to pay which the tool doesn’t already display. Moreover, if you believe you can reduce these costs, you can change the values and our interactive calculator will re-estimate the expected cash flow.
Mashvisor’s Cash Flow Calculator – Expenses Breakdown
#5 Choose the Right Rental Strategy
When investing in rental properties, you can make money by renting out either traditionally (long-term rentals) or on Airbnb (short-term rentals). While you might have a preferred rental strategy, you might not realize that it affects your cash flow. You see, each strategy will yield different rental incomes which, in turn, affects cash flow. So to achieve positive cash flow, you must choose the optimal rental strategy based on your location and real estate data. For example, if your location is considered a tourist destination and data show that the Airbnb occupancy rate is high, then it only makes sense to rent it out as a short-term rental.
Related: How to Achieve Positive Cash Flow with Airbnb Rental Properties
Mashvisor will also help you identify the optimal rental strategy for any property in the US housing market. Our Cash Flow Calculator comes with a cash flow analysis that not only displays the cash flow of both strategies – it also includes data that shows how the rental property will perform as a traditional and Airbnb rental in terms of cash on cash return and cap rate. Thus, making sure that you’re investing in cash flowing real estate property that has a good return on investment is easier than ever. Want to give our tool a try? Click here!
Mashvisor’s Cash Flow Calculator – Rental Strategy Comparison
Final Words on Positive Cash Flow
The generation of positive cash flow in real estate is the driving factor to a successful investment. After reading this article, you should have an idea of how to achieve positive cash flow income properties. But to make things a lot easier, use Mashvisor. Our tools will save time and effort as they provide you with real estate data and predictive analytics that help you make investment decisions like a pro. To start analyzing investment properties in your city and/or neighborhood of choice, click here to start your 7-day free trial with Mashvisor and subscribe to our services with a 20% discount after.
