The main reason for investing in income properties is to make a profit and build wealth. Therefore, a real estate investment is considered profitable if it generates positive cash flow. But how do you, as a real estate investor, find positive cash flow investment properties in the real estate market? Read this blog for all the steps you need to know to start investing in income properties for positive cash flow.
What Does Cash Flow Mean?
Cash flow is simply the difference between revenue and expenses on a monthly basis. The revenue includes the rental income and any other sources of income from the rental property, and expenses include mortgage payments, operating costs, and vacancy costs. A positive cash flow scenario takes place when revenue is more than expenses and negative cash flow would be the opposite. Besides the obvious reasons for investing in income properties for positive cash flow, doing so can help you expand your real estate investment portfolio to build your wealth faster.
8 Steps to Investing in Income Properties for Positive Cash Flow
Down below are the steps that you should follow in order to find income producing real estate that guarantees positive cash flow.
Related: How to Find Positive Cash Flow Income Properties in the US Real Estate Market in 2019
Step #1 Know Your Finances
Before you decide on buying this or that income producing real estate property, consult with your mortgage lender about your investment property financing options. If you have already built some equity in your own home or another rental property, then you might be able to use that to finance your next real estate investment. Are you already paying a mortgage? Can you afford another mortgage payment on top of that? Be sure to ask yourself these questions to set a sound financial plan that supports positive cash flow.
Step #2 Research the Location
You should probably know by now that location is the most important success factor when it comes to investing in income properties. Many real estate investors go for income property investments in their area mainly because they are easier to manage. However, this does not mean that you shouldn’t consider buying an income property out of state.
For any location to be an excellent choice, it has to fulfill several conditions. High rental demand should be present. A good indicator of rental demand is the presence of universities and economic hubs that attract students and families to live in a given area. Additionally, population growth and unemployment rate are good indicators of the health of the housing market.
Step #3 Perform a Neighborhood Analysis Using a Heatmap Analysis Tool
Regardless of the city you choose to invest in, to ensure positive cash flow, we advise you to use our heatmap analysis tool. With the heatmap tool, you can easily find the most profitable neighborhoods by narrowing your options to neighborhoods with positive cash flow properties.
Mashvisor’s Heatmap Analysis Tool
Learn More: Airbnb Rentals: Finding Income Properties Using a Heatmap
Step #4 Use a Property Finder
A property finder makes your job easier when investing in income properties. Unlike traditional property search methods, a property finder can drastically cut down the time needed to find an investment property. Mashvisor’s property finder utilizes machine learning and AI technology to provide you with the best positive cash flow income properties. All you have to do is enter your budget range and the rental strategy you intend to use with the investment property. Unlike other property finders, Mashvisor’s own allows you to search for rental properties in up to 5 cities at the same time.
Mashvisor’s Property Finder
Step #5 Consider Multi Family Properties
It is not a secret that some types of real estate investment properties generate higher rental income and cash flow. Investing in income properties for maximum positive cash flow is guaranteed when investing in multi family rentals. The main advantage of investing in multi family rentals is the high rental income that comes with it. Despite having a higher acquisition cost, you can end up making more money per unit in a multi family rental when compared to a single family rental. Combine this step with the last by setting the multi family home filter on Mashvisor’s property finder. That way you’ll find the best multi family homes for sale quickly and easily.
Step #6 Conduct an Investment Property Analysis Using the Rental Property Calculator
Before you purchase an income property for sale, it is important to evaluate its performance as a real estate investment. Investment property analysis is made easier with the real estate investment calculator. This advanced tool analyzes investment properties by providing expected rental income, cap rate, cash flow, and other real estate metrics.
The rental property calculator from Mashvisor is your ultimate tool when it comes to investing in income properties for positive cash flow. Using one saves you the trouble of conducting investment property analysis on your own.
Mashvisor’s Rental Property Calculator
Related: What Is a Good ROI for Investing in Income Properties?
Step #7 Perform a Real Estate Market Analysis
Real estate market analysis, or comparative market analysis (CMA), is the process of valuating a real estate investment property in comparison with other properties in the area. The reason why investors carry out CMA before investing in income properties is to make sure they are not paying too much for the property.
A real estate market analysis is usually done by a professional real estate appraiser. However, as a real estate investor, you can estimate the value of your investment property on your own.
Step #8 Choose the Optimal Rental Strategy
When it comes to investing in income properties, you must choose the optimal rental strategy that better suits your investment property. Depending on location, accessibility, and proximity to points of interests, a rental property can either be used as an Airbnb rental or as a traditional long term rental. With a short term Airbnb rental strategy, there is a higher chance of greater positive cash flow.
Conclusion
To ensure investing in income properties with positive cash flow, a real estate investor should carefully research the location of the investment property and the property itself. Mashvisor provides several tools that make the process of finding positive cash flow properties easier. We accompany you in every step of the investment, from finding the property to analyzing it.
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