Investing in real estate offers a good opportunity for investors to make money and build wealth. However, investing in just any income property won’t do the trick. To make money in real estate, you need to find a positive cash flow investment property.
Positive cash flow real estate investments mean that all costs (maintenance costs, mortgage repayments, etc.) will be covered by the rental income with some money still left to spare. Positive cash flow is what will fuel your investment portfolio. By building equity and improving your savings, you will be able to make other investments. Otherwise, if you end up with a negative cash flow property, you will be losing money out of your pocket each month, which is a nightmare for any real estate investor.
Investing in positive cash flow properties can be a lucrative investment strategy. However, it is often difficult to find positive cash flow investment properties, especially if you are doing it for the first time. Some people even believe that positive cash flow properties no longer exist. But this couldn’t be further from the truth! You can still find or even create them. So, how do you find the best cash flow investments? In this article, I am going to teach you some of the best strategies for positive cash flow investments.
Related: Tips to Help You Always Find Cash Flow Real Estate Investments
1. Select the Right City
The first thing you should consider if you want to have the best cash flow investments in 2020 is the location. Location is the main factor that determines the profitability of a real estate investment. Therefore, you should be open to investment opportunities wherever they come. If your city is not good for investment, you should consider out-of-state real estate investing.
So, how do you find the best cities for investment? You need to perform real estate market analysis. Focus on markets with a solid group of tenants. These are cities near universities, factories, transit lines, businesses, tourist attractions, etc. However, it is important to note that hot markets with high rental income won’t necessarily offer the best cash flow investments. The property prices in these cities will often be higher than usual. Thus, the rental income may not be enough to compensate for it. Cities with the best cash flow investments are those that have demand from renters but properties are still affordable. Traditionally, positive cash flow investments are located away from big cities. Look at rural and suburban areas instead.
Check out Mashvisor’s real estate market reports and learn about some of the best places to invest in real estate!
2. Select the Right Neighborhood
After choosing a suitable city, your next strategy for the best cash flow investments should be choosing the right neighborhood. Not all neighborhoods within a city are the same. Rental income and property prices may be different in different parts of the city, resulting in different cash flows. To find the most profitable neighborhoods, you can perform neighborhood analysis using Mashvisor’s heatmap tool. You can customize the criteria of the investment property you are looking for and it will narrow down the neighborhoods with positive cash flow properties. Neighborhoods with the best cash flow properties will be highlighted in green.
3. Consider Different Investment Property Types
The type of property you invest in will also influence your cash flow. You should explore different alternatives to find which type offers the best cash flow investments in the neighborhood. Multifamily homes generally have a higher price tag but will offer better cash flow than single-family homes. This is because management costs per unit are typically lower. Therefore, you will be able to cover your expenses and still earn a profit. Buying multifamily homes is a great strategy for landing the best cash flow investments in 2020.
4. Consider Investing with a Partner
You can also get the best cash flow investments through real estate investment partnerships. Having your own investment property may make you independent but it is not always the best choice if your goal is positive cash flow. With a real estate partnership, you and your partners can pull your resources together and purchase a much larger investment property that generates more cash flow. A partnership could also allow you and your partner to buy multiple investment properties much easier than if you were to do it on your own. The more rental properties you have, the more cash flow you will be able to generate.
If you are still a beginner real estate investor, having a partner with more knowledge and experience in real estate investing than you will also enable you to find better housing markets and properties for positive cash flow. You will be able to avoid some investment mistakes that you would have committed if you had invested alone. Some of these mistakes would have led you to negative cash flow investments. Just make sure you carefully select your partner. It should be someone you trust who complements you and has the same investment goals as you.
5. Consider an Airbnb Rental Strategy
Your rental strategy is also going to influence your cash flow. Generally, the Airbnb rental strategy tends to be more profitable than the traditional strategy since it can generate more income and cash flow. In fact, in a tourist area, an Airbnb investment property can make three times more rental income than a traditional rental. Therefore, you should consider an Airbnb rental strategy if you want the best cash flow investments.
You can use Mashvisor’s investment property calculator to determine whether the Airbnb rental strategy is more lucrative. The calculator will show the differences in rental income, cash flow, cap rate, and cash on cash return between both real estate rental strategies. It will also show you the projected Airbnb occupancy rate for your investment property. However, make sure you check the Airbnb regulations in your city before you invest in Airbnb.
6. Build a Real Estate Investment Network
Networking is another strategy you should consider if you want to get the best cash flow investments in 2020. As you know, real estate is a people business. Your connections with other real estate professionals and the local real estate investing community will help you to identify the best cash flow investments. Your network can be a good source of information regarding profitable neighborhoods or positive cash flow properties for sale.
Related: How to Build and Maintain a Real Estate Investment Network
7. Select the Right Financing Strategy
The right financing method can make the difference between a positive cash flow property and a property that costs you money every month. How are you going to finance your investment property? Buying a rental property in cash means that you won’t have monthly repayments, which translates to better cash flow. However, not everyone has enough money saved up for buying rental property in cash. If you are one of these people, you’re going to need a loan. Your mortgage payment will be your biggest expense. And so, any reductions you make on this will increase your cash flow. You should explore different real estate financing options depending on how they affect your cash flow and your financial situation. Mashvisor’s rental property calculator will help you choose the best financing strategy for the investment property you are analyzing.
8. Be Your Own Property Manager
Hiring professional rental property management will cost you a lot of money and reduce your cash flow. To ensure you have one of the best cash flow investments, you should manage your own properties. This will definitely require more of your time, energy, and skills. For instance, you will have to learn how to do most of the repairs on your own or who to hire in certain cases. Nevertheless, managing your property yourself will save you a lot of money and help increase your cash flow.
9. Take Advantage of Property Tax Deductions
There are many tax deductions available for rental property owners for costs such as repairs, mortgage interest, depreciation, travel, insurance, etc. In fact, there is barely any investment with more tax benefits than rental properties. Often, these tax deductions make the difference between earning a profit and losing money on an income property. One strategy for the best cash flow investments is to take advantage of all these rental property tax deductions. However, different areas have different taxation laws, which influence the deductions. To take full advantage of the possible deductions, make sure you study the local taxation laws before purchasing a rental property or consult a professional.
Related: All You Need to Know About Investment Property Tax Deductions
The Bottom Line
If you want to build a sustainable real estate portfolio and get rich in real estate, positive cash flow properties are key. Without positive cash flow, you are likely to get stuck. However, there is no one single strategy for finding cash flow investments. This is because cash flow depends on a number of factors. By using a combination of the above strategies, you will increase your chances of finding the best cash flow investments. Also, be sure to use Mashvisor’s real estate investment tools to explore different options.