One of the ways to prosper and make money in the real estate business is finding and investing in positive geared properties. As a beginner real estate investor, you may hear everyone talking about such real estate properties, but what are they exactly? Positive geared properties are investment properties which generate positive cash flow. Thus, positive geared properties bring more rental income to the real estate investor compared to the sum he/she needs to pay as costs. These expenses might include mortgage payments, property maintenance costs, property taxes, and so on and so forth.
So far so good: positive gearing is a sure way to make money out of your rental property. However, here comes the harder question, namely: “How to find positive geared properties in the real estate market?” There are some necessary steps a real estate investor should take in order to find a positive cash flow property:
Related: Real Estate Investing Guide: How to Find an Investment Property with Positive Cash Flow
#1 Budget and Finance
Before starting any plan executions of investing in positive geared properties, it is important for every real estate investor to create a budget plant. This step is essential for a couple of reasons. First of all, positive geared properties tend to be more expensive. Therefore, you have to make sure you have enough financial assets or make a plan for loan application. Additionally, knowing your finances is important when making other real estate investing decisions. These choices might be related to choosing the location of the investment property or selecting the investment property itself. Either way, the real estate investment strongly depends on the available financial assets of the investor. Last but not least, creating and managing your budget plan constantly will help in exploring the rental income as well as the expenses of a given real estate property. Therefore, it will be easier to understand if your rental property is one of the positive geared properties in the real estate market.
#2 Exploration of Profitable Areas
The location is one of the main points in finding positive geared properties. Profitable real estate areas for positive cash flow properties are typically the ones which attract more tenants. Such locations are, for instance, tourist places and areas with high employment as well as university and college cities. It is advisable for real estate investors to take this approach rather than going straight to the “hot” real estate market destinations. Even though they offer higher occupancy rates and higher monthly rents, they also require the payment of larger costs. Remember, for positive gearing it is important what amount is left after the payment of all expenses. Also, do not forget to check areas near you as having a rental property nearby is a sure way of cost reduction.
When choosing the best location for you positive geared property, take into consideration the neighborhood as well. It is preferable to invest in a rental property situated in a quiet neighborhood with low crime rates. Additionally, ensure yourself that the chosen location is convenient; for instance, it has easy access to public transportation, supermarkets, etc.
#3 The Type of the Investment Property
After a real estate investor has chosen the area for his/her positive cash flow property, the time has come for selecting the type of the investment. There are so many possible property types that it makes it extremely difficult for a real estate investor to choose one. Nevertheless, selecting the right property type for your real estate investment is very important. This step can be done through conducting real estate market analysis. Positive geared properties are the ones which are occupied most of the time. Therefore, the real estate investor should research the housing market: what are the tenants in the area looking for; what is the demand and supply of properties similar to the one you are interested in? Explore the potential rental income and compute the possible expenses associated with the specific property type. An investment property calculator can be of great help here.
Furthermore, make sure that the property type you choose for your potential positive geared property fits your financial as well as business plan.
Related: Your Best Friend in the Real Estate Investing Business? The Investment Property Calculator!
#4 The Right Investment Property
The most important step is, probably, selecting the real estate investment itself. In order to find the best positive cash flow properties, look for them everywhere: newspapers, websites, TV commercials, etc. The more real estate properties you get to choose from, the better. In this way you will really be able the select the best property for generating positive cash flow. Furthermore, positive geared properties are not always the ones with the best features, so do not aim for that. As previously mentioned, make some calculations and see the potential amount left from the rental income after costs. It is useful to use the investment property calculator when selecting the right rental property. Mashvisor’s investment property calculator provides real estate investors not only with the calculation of cash on cash return, cap rate, and potential rental income. This real estate investing tools gives detailed information about the selected property and its neighborhood. Additionally, it provides you with useful advice for the management of your rental property so that it is a positive geared one.
#5 The Making of Positive Geared Properties
After all, as a real estate investor, you should know that it is important how you manage your rental property. If you are willing to have one of the successful positive geared properties, it is essential to work on it. For example, it is of key importance to select the optimal rental strategy for your property. Would it be better to lease your real estate investment as a traditional rental or an Airbnb rental? Once again, Mashvisor’s investment property calculator provides you with suggestion of the best rental strategy for your investment, so use it.
Moreover, increase the rental income and cut the expenses in order to generate positive gearing. There are many ways in which you can do so, be creative as a landlord and find the best tactic for your rental property and your real estate investing business.
Related: Traditional Rentals vs. Short-Term Rentals: Which One Is the Right Rental Strategy for You?
As always, keep reading on Mashvisor for many more interesting real estate topics and tips for your career as a real estate investor.