Are you a real estate investor who wants to be successful? Are you willing to make money from your investment properties? Then, you have come to the right place! Simply put, a successful real estate investor equals positive cash flowing rental properties. This is obvious as negative cash flow means that you are putting more money in a property than you are receiving from it. How to find the best cash flowing rental properties? Well, you cannot always get the best real estate deals. What you can always do, however, is avoid the worst ones. Hence, let’s put a new question of interest: “How to avoid the worst cash flowing rental properties?” The list of steps towards avoiding the worst real estate investments is endless. That is why we will review some of the most important ones.
Related: The Best Cost Flowing Rental Properties: Do You Find Them or Do You Make Them?
#1 The Location Matters
The key to avoiding the worst real estate investments and negative cash flow is a simple principle. Namely, the real estate investor has to receive higher rental income from his/her investment properties than the costs he/she is paying for these properties. As you might already know, the location is a key element to finding positive cash flowing rental properties. It is, however, important to note that the best cash flowing rental properties are not always in the “hottest” locations in the real estate market. This is so because the so called, “hottest” destinations are typically associated with higher rental expenses. They surely generate higher rental income, but they also have way higher costs. Positive cash flowing rental properties are not necessarily the properties which generate the highest rental income, but the ones which generate rental income higher than their rental expenses. Remember that it is important. Therefore, look for locations which attract tenants, but are also associated with less expenses. Search for university/college towns, places with many job opportunities, etc. Ensure yourself there is a high demand for rentals on the real estate market.
#2 Conduct Real Estate Market Analysis
Real estate market analysis along with investment property analysis is essential when choosing the best cash flowing rental properties. Many real estate investors neglect this step and end up with the worst real estate investments. Conducting real estate market analysis and investment property analysis gives realtors the opportunity to dig deeper and get insightful information about their potential investments. There are various real estate metrics to help you in conducting such a research. The provided data and results would give you an estimation of whether or not specific investment properties are good business opportunities. Conducting real estate market analysis and investment property analysis is a sure way of getting positive cash flowing rental properties. In order to get the best results possible, a real estate investor should invest a lot of time and effort in this research. Luckily, there are various real estate tools to help you in the process.
Related: Real Estate Market Analysis: The Basics
#3 Use Real Estate Market Analysis Tools
The Investment Property Calculator
The investment property calculator is a great tool to use if you want to avoid the worst cash flowing rental properties. This real estate tool is considered to be the best friend of each and every realtor. The reason behind this is the fact that the investment property calculator makes conducting real estate market analysis a piece of cake. It calculates cash on cash return, potential rental income, cap rate, etc. In this way the real estate investor does not have to enter data manually and spend tremendous amount of time analyzing it. Further, the investment property calculator provides more accurate results and allows easy comparison between various investment properties. As you can imagine, this makes finding positive cash flowing rental properties a lot easier.
Mashvisor’s investment property calculator, for instance, will also provide you with detailed information regarding not only the property itself but also the neighborhood. Additionally, Mashvisor’s real estate tool will suggest what the optimal rental strategy for the chosen property is. Choosing the appropriate rental strategy is one of the main steps towards avoiding the worst cash flowing rental properties and choosing the best ones instead.
The Cash Flow Calculator
The cash flow calculator is a specific type of an investment property calculator. It computes the potential cash flow of a real estate property. The tool is extremely helpful when trying to avoid the worst cash flowing rental properties. This is so because the cash flow calculator indicates if an investment property would be more likely to generate negative cash flow. If this is the case, the real estate investor can move on and search for another positively geared property. Pretty straight forward, right? This real estate tool is easily accessible online. It computes cash flow based on its formula:
Cash flow= Inflowing amount of money (the income a property generates) – Outflowing amount of money (the costs associated with the property)
Related: Real Estate Investing for Beginners: How Much Cash Flow Is Good for Rental Property?
#4 Choose the Optimal Rental Strategy and Monthly Rent
As previously described, choosing the optimal rental strategy is very important for avoiding the worst cash flowing rental properties. It is advisable to check the demand for rentals in the area of investments. Are tenants looking for short-term rentals or long-term rentals? What are the potential expenses associated with each rental strategy? What are the regulations in the area? Be careful when answering all these questions in order to choose the optimal rental strategy. Do not forget to use Mashvisor’s investment property calculator as a guide in the process.
How much you will charge for rent is also crucial for the success of your rental properties. There are many different ways real estate investors use in order to decide on a monthly rent. It is essential, however, to choose a monthly rent higher than the potential rental expenses if you want to own and manage positive cash flowing rental properties.
Keep reading on Mashvisor for more insightful information on various real estate topics!