If there’s one thing every real estate investor is after, it’s to get rich in real estate. With the vast diversity of real estate, there are multiple avenues that allow investors to accomplish this goal. Investing for real estate appreciation, for instance, can make investors rich after a long period of time. However, the most direct and profitable way of making money in real estate is by investing in the best cash flow investments.
Related: What Are the Best Ways to Make Money in Real Estate as a Beginner?
Positive Cash Flow: What You Need to Know
Before we can talk about how to find the best cash flow investments, we need a word or two about what positive cash flow really is. By definition, positive cash flow is when the difference between the rental income of an investment property and its rental expenses is positive, yielding a net profit.
Understanding positive cash flow is quite simple, but finding the best cash flow investments is not as easy. Luckily for you, the real estate investor, we’ve compiled six different things to keep in mind when searching for positive cash flow investments.
Choose the Right Location
The three most important things when buying a rental property are location, location, and location. This is true for all aspects of real estate, ranging from appreciation to cash flow. Location influences various factors that relate to the cash flow of an income property. These factors include rental income, return on investment (cap rate and cash on cash return), property prices, average rental expenses, and much more. In order to have the best cash flow investments, a real estate investor needs to understand the location’s niche. Tourist hotspots are ideal for an Airbnb rental strategy, for instance. Suburbs and residential areas in a city are excellent areas for single family homes and multi family homes. You should also consider broadening your search by looking into out of state real estate investing.
To determine if a desired area is suitable for your real estate goals, you need to perform a real estate market analysis and a neighborhood analysis. Luckily for you, Mashvisor can help you do just that. Click here to learn more!
Consider Different Real Estate Rental Strategies and Property Types
Location is not the only thing that impacts an investment property’s cash flow. The type of rental property itself will also play a role in positive cash flow. As alluded to earlier, different property types thrive in different locations. For example, single family homes are the best type of rental property in the Dallas real estate market.
Different property types also tend to generate different ranges of cash flow. Multi family homes, such as apartment complexes, for example, usually have higher cash flow than single family homes. The higher rental income per unit, and the lower sum of expenses, as a result, are the main reasons multi family homes tend to be more profitable than their single family counterparts.
The best cash flow investments come in all types of real estate rental strategies. Generally, Airbnb rental properties tend to be more lucrative than traditional income properties. This principle is truer in cities and metros, due to their high Airbnb occupancy rate averages. There are many cases where the reserve is true, however. It is up to the real estate investor to learn about a property type’s profitability in a given area.
Related: Top 4 Property Types and Investment Strategies
Get into Real Estate Investment Partnerships and Networking
The process of buying and maintaining the best cash flow investments does not have to be a one-man job. Real estate investors should consider real estate investment partnerships and networks when buying a rental property. Partnering up resources with other real estate investors allows the group to purchase large, expensive, cash flow-generating real estate investments for less money than when done solo. A real estate investor should also seek help from other professionals. Real estate wholesalers, for example, are great sources of affordable real estate investments. Real estate agents can also aid investors in the process of analyzing real estate investment locations and properties.
Evaluate Your Financing Strategy
High rental income is key to having the best cash flow investments. The same can be said about low property expenses, with your financing strategy being a major component of expenses. Buying a property solely with cash or with a mortgage will affect your cash flow. For an analysis of how your financing strategy impacts your ability to have the best cash flow investments, click here to learn about Mashvisor’s rental property calculator!
Take Advantage of Rental Property Tax Deductions
The costs associated with managing a rental property are vast and varied. These include operating costs, repairs, depreciation, business costs, and more. Another part of rental property expenses lies in rental property taxes. Fortunately, there are many rental property tax deductions that real estate investors are eligible for. The previously mentioned costs are fully tax-deductible for real estate investors and landlords. Tax deductions are an important and valuable piece of the equation when it comes to having the best cash flow investments in real estate and they are one of the reasons why investing in real estate is as profitable as it is.
Pick the Most Cost-Efficient Rental Property Management Option
The costs of rental property management are a major portion of the rental expenses that are included in the cash flow formula. Some investors prefer to self-manage their income properties. Others would rather have a professional property management company take care of the work. For the sake of the best cash flow investments, real estate investors need to choose the most cost-efficient rental property management option. For instance, investors of multi family homes, particularly condos and apartment complexes, would benefit more from professional property management as opposed to self-management. The management option will differ on a case by case basis. By analyzing the costs associated with an investment property through a rental property calculator, a real estate investor can decide which management option is optimal for a property.
Related: Rental Property Management Tips for Landlords
By following the guidelines mentioned in this blog, any real estate investor can find and create the best cash flow investments. To make this process much simpler, click here to start your 14-day FREE trial with Mashvisor and utilize its investment tools!
