The success of any real estate business depends primarily on an investor’s ability to make a profit. In real estate investing, generating money is accomplished by investing in positive cash flow properties. Positive cash flow means that your income exceeds your expenses which results in generating a profit.
For any real estate investment to be classified as “profitable,” it must have a high return on investment (ROI) and a high cash flow. Real estate investors can earn passive income from their rental properties in the form of monthly rental income. To guarantee that you are investing in positive cash flow properties, always chase the locations that offer high rental income.
If you want to know why investing in positive cash flow properties is a must, how to invest in positive cash flow properties and where in the US housing market should you invest, then keep reading because this blog is about to answer all these questions!
Why real estate investors should invest in positive cash flow properties
There are many reasons why investing in positive cash flow properties is a must. Besides the fact that positive cash flow properties allow you to easily make money in real estate, they can also lead you to financial freedom. Positive cash flow is the essence of return on investment. The major real estate metrics used for determining the rate of return on investment are cash on cash return and cap rate. These metrics strongly influence a rental property’s cash flow.
Here are the main reasons why every investor should invest in positive cash flow properties:
Leads to expansion
The good thing about positive cash flow properties is the high profit they generate. Real estate investors can use this profit to expand and invest in more than one property. Positive cash flow can be used to pay off other expenses like your mortgage, property taxes or can be saved up for another down payment for an additional property.
Don’t have to pay for renovations from your pocket
Investing in positive cash flow properties means that the investor doesn’t have to worry about spending more of his/her own money on renovations and repairs or upgrading appliances. This can easily be done from the income generated from the property.
Easier to pay off the investment
Investing in positive cash flow properties means that you, as the owner, are generating more money than you initially put in. This means that the property provides you with enough money in order to make back the money invested. For example, if your monthly rent charge is $2,000 but your added expenses add up to $1,200, then you are still able to pay off your expenses while making a profit of $800!
How to invest in positive cash flow properties
1. Find the right location
You should know by now how important location is for the success of any real estate investment. Your first step is always finding the right location that yields a high return on investment. You have two options to choose from to find properties in the US housing market: in-state or out-of-state. Many investors go for properties that are in their area mainly because they are easier to manage since they are nearby. This does not mean that investing in out-of-state properties is not smart.
You need to find a location that provides all the aspects for positive cash flow properties. Find out what makes the area attractive for real estate. Is it close to universities? Is it close to developing factories and work hubs? Or is the area a tourist destination? What types of tenants are in your location? Your key strategy for finding the right location is finding the area that has a high demand for rental properties.
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2. Chase the locations with high rental income
In order to generate positive cash flow, you need to chase the areas that offer high rental income. Having a high rental income means that you are able to cover the rental expenses and still have extra profits for yourself. You need to analyze your real estate market and see which neighborhoods offer the highest rental incomes.
3. Find investment properties
After you’ve found the right location and picked an area that offers high rental income, it’s time to narrow down the investment properties. Ask yourself, what type of property best suits your area. For example, is the area a school district? If yes, then single-family homes would be the best investment property. If your area is a tourist destination, then investing in vacation homes would be the best choice. There are many different types of rental properties to choose from: townhouses, condos or even multi-family homes.
With Mashvisor’s property finder tool, you can identify the best property in your chosen city/cities. You can use the different filters to filter out properties that don’t match your needs.
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The interior and exterior of the property are also important things to consider when searching for positive cash flow properties. How many bedrooms/bathrooms do you want? Does the property have enough space inside and out? Do the property’s systems (heating, cooling, water, electric) run smoothly? You need to carefully think about these factors because they can significantly impact the property’s overall cash flow.
4. Analyze the property
The final and most important step is something that every real estate investor should do before purchasing any property which is analyzing the property. Investors must analyze the property to know the expected rental income, cash on cash return, cap rate and rental expenses. You need to conduct both real estate market analysis and investment property analysis to determine whether or not you are investing in positive cash flow properties that are worthwhile.
Read Also: How to Perform a Real Estate Market Analysis
Mashvisor has all the necessary real estate investment tools to make this process easy and stress-free. With our rental property calculator, you can analyze any investment property nationwide. Our rental property calculator will provide you with all the required data such as the property’s rental income, occupancy rate, cash on cash return, cap rate and so much more!
Using our rental property calculator, we were able to pull out the best locations for positive cash flow properties in 2018. Our main focus was on areas that offer high rental income and cash on cash return since these two metrics drastically affect the property’s overall cash flow. Take a look at the best locations for both traditional investment properties and Airbnb investment properties.
Where to invest in positive cash flow properties: Traditional investment properties
1. Key West, Florida
- Traditional rental income: $4,103
- Traditional cash on cash return: 4.2%
2. Riverhead, New York
- Traditional rental income: $3,339
- Traditional cash on cash return: 4.15%
3. Napa, California
- Traditional rental income: $5,701
- Traditional cash on cash return: 3.63%
4. Santa Rosa, California
- Traditional rental income: $3,910
- Traditional cash on cash return: 3.36%
5. San Mateo, California
- Traditional rental income: $4,258
- Traditional cash on cash return: 3.12%
Where to invest in positive cash flow properties: Airbnb investment properties
1. Riverhead, New York
- Airbnb rental income: $8,571
- Airbnb cash on cash return: 7.86%
2. Key West, Florida
- Airbnb rental income: $7,803
- Airbnb cash on cash return: 6.91%
3. Ithaca, New York
- Airbnb rental income: $4,071
- Airbnb cash on cash return: 7.64%
4. Traverse City, Michigan
- Airbnb rental income: $4,220
- Airbnb cash on cash return: 6.59%
5. Kaneohe, Hawaii
- Airbnb rental income: $7,869
- Airbnb cash on cash return: 7.4%
A Final Word
There you have it: why you should invest, how you should invest, and where to invest in positive cash flow properties! Always keep in mind that positive cash flow properties are the driving force behind any successful real estate investment. So don’t hesitate and start your search today with Mashvisor and start making money with these properties!
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