Positive cash flow is the number one most important thing when owning a rental property. Investors should make positive cash flow their priority when on a property search because it means paying the mortgage, building equity, and profiting every month. While appreciation is a huge benefit in real estate investing, it should not be the main reason for investing due to the uncertainty of the market’s future. Positive cash flow should be achievable with a down payment of 20%. Here are different ways to minimize costs and ensure positive cash flow.
1. Use Analytics When Searching
With the big data that is available today, finding a property’s potential income and expenses has been simplified. Mashvisor predictive analytics provides users with a breakdown of estimated expenses, income, cash flow, cash on cash return, and more with each property that is clicked. This data is based off of past trends and algorithms to predict future trends and outcomes. With this type of online tool, understanding cash flow and selecting positive cash flow properties is easy.
Knowing all costs ahead of time is the foundation for planning monthly costs and for calculating cash flow. Read more about different costs in this guide to real estate investing.
While on a property search, it’s important to get an idea about the revenue, vacancies, and tenants of nearby properties. This can require a lot of different searches but Mashvisor also provides neighborhood insights and comparative data to reveal this type of information.
2. Pick Hot Locations
It can’t be said enough: location, location, location. Pick a location that is profitable, not convenient. A profitable location has high demand, a good job market, infrastructure development, and market growth. Follow people’s movement. College towns provide great investing potentials because of the high and stable demand, low vacancies, and premium location.
When looking for locations, home prices and rental rates are the most important factors. Home prices and expenses should be compared to the market condition to determine if the property is worth the costs. The rental rates should provide enough income to cover expenses and generate profit. Depending on your budget and market conditions, try targeting neighborhoods that have high rental yields.
3. Make Renovations
Whether purchasing a flip or an as-is property, getting an inspection will reveal any issues and give the investor the opportunity to make renovations ahead of time and save costs in the long-run. Renovations – big or small – help increase a property’s value and rental income. Find ways to economically make renovations; sometimes a property just needs repairs as opposed to replacements which can save money. A deep cleaning and adding some minor touches like light fixtures can go a long way for tenants. Consult investors and contractors to know when something needs complete renovation, a simple repair, or if a property is just not worth the investment.
4. Look for Deals
There are different ways to save money when acquiring an income property. Short sales, pre-foreclosures, auctions, and foreclosures are all alternative ways to buy a property for a smaller price. There are also different ways to buy a property below market value. This usually involves acting quickly when making offers, looking for sellers who want to quickly sell the property (such as investor-owned homes), negotiating, and being patient.
5. Manage Interest Rate Risk
Interest rate risk is the risk that the value of an investment will fluctuate with fixed interest rates. Managing interest rate risk is important in order secure your investments. Find out the different ways to manage interest rate risks to protect cash flow.
Creating and maintaining positive cash flow is the essence of a successful investment. This is created by exploring different approaches to minimizing costs when investing. The cash flow should be more than just having a little money left over after breaking even; investors can aim for a 5-20% return. Use an investment property calculator to determine what kind of income is required in order to meet the returns hoped for.
Find positive cash flow properties on Mashvisor.