The best real estate investing strategies yield a high return on investment and appreciate in value over time.
The crux of making money in real estate is all about building and growing a real estate portfolio over time to safeguard a wealthy retirement lifestyle through cash flow. Owning multiple rental properties that generate positive cash flow returns gives you financial freedom and independence for a long time. It goes without saying that real estate investing becomes a sustainable business with many long term rewards. For one, you can say goodbye to your 9-5 job and not have to worry about losing your job; real estate gives you job security. Here in this post, we give you the top real estate investing strategies for reaping positive cash flow properties.
The 7 Best Real Estate Investing Strategies
1. Positive Cash Flow Properties Tip #1: Invest in High Yield Locations
Capitalize on rental properties in a good location with nearby amenities. The idea here is to minimize the overall real estate risk by choosing an area that attracts high rental demand and a high occupancy rate throughout the year.
Remember, your tenants pay your mortgage payments, so be very careful in who you choose to live in your rental property. Without a good tenant, real estate investing makes absolutely no financial sense. If you are iffy on which location to invest in, turn to Mashvisor.com to find the best profitable real estate investments across the country within a matter of minutes. Mashvisor does all the analysis and number crunching for you, so you don’t have to worry about the manual excel sheet work and spending hours on end trying to calculate your ROI and cash on cash returns.
2. Positive Cash Flow Properties Tip#2: High Tenant Demand
In tandem to the previous point, the best real estate investing strategies reap high tenant demand and high rental income. It is an easy formula; the more rental income you earn from your real estate investment, the more income and surplus of cash returns you have to cover the overall costs of owning the rental property. So long story short, a high rental yield is crucial and amongst the best real estate investing strategies you need to accumulate wealth in real estate.
3. Positive Cash Flow Properties Tip #3: Low Interest Rates
If you are taking out a mortgage loan to buy a rental property, make sure the interest rate makes sense to you in the long run. High interest rates on a real estate investment will not reap you positive cash flow returns and won’t make sense economically. The lower the interest rate on your real estate investment, however, the less costly it is to own the real estate investment and more likely it is to capitalize on the best real estate investing strategies.
4. Positive Cash Flow Properties Tip #4: Depreciation
Another great perk of real estate investing is the tax credits and tax advantages you earn from owning a real estate investment. With this said, the more you claim for depreciation on your rental property, the higher your tax credit and the more money you save. Newer real estate properties offer much higher levels of depreciation than older more established properties. So, the newer the property, the more positive cash flow returns you earn.
5. Positive Cash Flow Properties Tip #5: Nail Down the Expenses
Keeping your rental expenses to a minimum increases your cash flow returns and helps real estate investors safeguard a profitable real estate property. Major rental expenses include but are not limited to property tax, insurance, real estate tax, repairs etc. If you can offset expenses with monthly cash flow returns or a surplus of cash, then it’s a positive cash flow property and you have made the right investment decision. Make sure to have a budget for rental repairs down the line to keep your rental costs at a minimum and avoid major financial hiccups. One of the best real estate investing strategies to hone down is to lower your expenses long term.
6. Positive Cash Flow Properties Tip#6: Build Equity
Building equity is one of the best real estate investing strategies because it is what makes most rental properties positively geared. The more equity you have on a real estate investment, the more positive cash flow returns you will earn on the property. With equity, you gain the leverage to buy more rental property to diversify and grow a real estate portfolio. A rental property is considered a profitable investment with positive cash flow returns if the real estate investors are able to keep the loan to 50% of the property value or less. This is called the loan-to-value ratio (LVR). Investopedia defines the loan-to-value (LTV) ratio as a financial term used by lenders to express the ratio of a loan to the value of an asset purchased.
The total cost of a loan increases as the LTV ratio increases, and vise versa. For example, a borrower with an LTV ratio of 95% may be approved for a new mortgage, but the interest rate will be higher than a borrower with an LTV ratio of 75%.
7. Positive Cash Flow Properties Tip #7: Buy Older Properties to Renovate
Buying an older property in a good location to reap high ROI is amongst the best real estate investing strategies. The rationale behind this real estate strategy is the fact that older properties are usually cheaper than newly renovated and built properties. If you want to make a good bargain, look for these rental properties at a discount to market value to reap positive cash flow returns in the long run. The key here is to capitalize on a good location first and foremost, but do not rush into buying a rental property before estimating the expected expenses you will incur to renovate and refurbish the rental property. If your cost and benefit analysis makes economic sense to buy the house, then go for it without hesitating. But if the opposite is true, stay on the safe side and buy a newer investment property that won’t cost you as much as the renovation.
It is never too early or too late to start investing in real estate to grow your wealth and gain financial freedom over time. The smarter way to accumulate wealth in real estate is through studying the market and seeking professional advice from mentors and/or real estate advisors to keep your business profitable every step of the way. Sometimes, learning the hard way might burn a hole in your pocket, so the key takeaway is to stay on a steep learning curve and use the aforementioned real estate investing strategies to capitalize on positive cash flow properties.
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