If you’re looking to make some money in real estate, then having positive cash flow properties is your top priority. You could invest for appreciation, but positive cash flow is the most upfront and beneficial gain you could make. Having positive cash flow means paying all costs associated with your property using rent and still having profit. In other words, it’s having a net positive after paying expenses using your collected rent.
Understanding the necessity of positive cash flow properties is easy, but finding such properties isn’t always as smooth. When searching for properties, you will need to consider some vital factors that will influence the potential positive cash flow you could earn. Here’s how to find money-making properties.
Related: 5 Ways to Create a Positive Cash Flow Income Property
1.) Find the areas you want to invest in
First thing’s first, pick a suitable location. The location you choose could be the key player in the positive cash flow you could earn. Location dictates almost everything, from tenant pools to legal restrictions of certain rental types, like Airbnb.
Although it is more convenient to choose an area that is close to you, you might have to look farther for positive cash flow properties. Find out what would make the area attractive for real estate. If the area is close to colleges and universities, then it will be a hotspot for college students. If the factories are moving into the area, then you could expect blue-collar workers to move in. Be aware of the area’s opportunities and the types of tenants you should expect.
Luckily for you, finding areas with positive cash flow properties does not have to be difficult. By using Mashvisor, you’ll find high-producing properties within minutes. By entering your desired city in the search bar, the various areas of the city will be presented. Each area’s cash on cash return, cap rate, and median property price will be displayed. To determine which areas contain positive cash flow properties, play around with the heatmap to see which properties rank high in features associated with positive cash flow. For instance, properties with high rental income and occupancy rates tend to have positive cash flow. You can adjust the heatmap for these features (and more) and the areas that are hot or cold for these features will appear.
Now that you’ve found a lucrative area, it’s time to find a property.
2.) Narrow down the properties
Decide what kind of property you want to purchase and how it ties up with your area. For instance, if you’re in a neighborhood nearby school districts, you may want to buy a single family home or condo. To increase positive cash flow, you could also try to find properties with basements or a garage. If you could rent out the garage and basement individually, you’ll be sure to increase positive cash flow. Again, you could use Mashvisor to set what kind of property you are looking for. Also, you could set the number of bathrooms and bedrooms you are interested in having.
Use Mashvisor’s rental comps to narrow down the positive cash flow properties in the area. By comparing the property to other Airbnb or traditional properties in the area, you’ll get a sense of how successful the investment will be, and how much positive cash flow you could earn. Also, Mashvisor’s valuation analysis of a property, which breaks down how similar the property is to others based off distance, number of bedrooms and bathrooms and distance, is also provided. These two important pieces of information will help determine the positive cash flow properties.
You could also scour for properties based on the cash on cash return, cap rate, and rental income you aspire for. The properties can be analyzed in terms of funding, too. If you plan on funding the property through a mortgage, enter your down payment and the loan type. The interest rate is set based on the area. Set your budget. The properties that are presented are the ones that meet your standards.
Related: Buying Your First Rental Property: FAQs
3.) Break down the property
Once you’ve found your matched property on Mashvisor, you can view the property page, which displays cash flow, optimal rental strategy for positive cash flow, and other important data. The math is already done for you, but if you’re interested, this is how you can calculate the cash flow zone of a property.
Cash flow zone = (Gross annual rental income / Property price) × 100%.
Properties that are between 8% to 10% should be positive cash flow properties. Properties over that percentage are pretty much guaranteed to have positive cash flow. Those under that range are not.
This formula is very helpful, but it doesn’t necessarily show the full picture. Another important aspect of cash flow is the breakdown of expenses. Mashvisor, once again, comes to the rescue. Monthly expenses are already calculated and incorporated to the displayed cash flow. Also, for further breakdown, you could use Mashvisor’s investment property calculator.
Let’s elaborate on monthly expenses. These are recurring expenses that you must cover. One example is mortgage payments, which you can always adjust depending on your plan. Other expenses relate to damage, maintenance, inspection, management, appraisal, legal costs, and property taxes. You can always add or change any expenses, which will alter the cash flow. Remember, the rental income of positive cash flow properties exceeds the costs of expenses.
Once you do have positive cash flow, you need to maintain it. Find ways to reduce costs for your property without spending too little. Once again, even after you’ve purchased the property, an investment property calculator will serve you well.
Related: How much rental income should you be making?
There you have it, how to find positive cash flow properties. Positive cash flow is the driving force to a successful investment. Using Mashvisor to find positive cash flow properties will save you plenty of time and effort, as the analysis is interactive and takes little time to master. Start your property search with Mashvisor today!