It is no secret that investing in real estate, both commercial and residential, provides an excellent opportunity for many investors to make money and accumulate wealth. This is why real estate investments are so appealing to so many people. However, it is worth mentioning that investing in just any income property will not do the trick, and you have to be more selective.
You have to find positive cash flow investment properties in order to make money in the real estate market. The phrase cash flow positive has some panache for all investors. And when it comes to real estate investments, there are always properties that are likely to generate positive cash flow for many years in the future. Positive cash flow investment properties are great as they produce passive income and help you achieve financial freedom. Therefore, they improve your ability to purchase your next property sooner. It is like a flywheel that is spinning faster and faster.
However, finding positive cash flow rental properties for sale can be difficult at times, especially if you don’t know what you have to look out for. Here is how you can find these properties.
1. Choose a Location
Location means everything in real estate. So, the first thing you must consider when looking for the best positive cash flow properties is the location. Location is one of the key factors that determine the profitability of any real estate investment, including the cash flow which it produces. So, the first and most important step that you have to take is to do some research to find a profitable location for rental properties.
Some of the main characteristics of profitable locations are a strong economy, high rental demand, and a growing labor force. While it might be more convenient for you to pick an area or neighborhood that is close to you, sometimes, you may need to look farther for a positive cash flow property. You should also find out what makes a specific location attractive for real estate. For example, if the area you are considering is close to universities and colleges, it will be a hotspot for college students.
2. Initiate the Search Process
Before buying an investment property, you’ll have to do some background research in order to make a wise decision. When you have chosen a lucrative real estate location, you should move to the next step, namely, the investment property search. To expedite this process, you can use a wide variety of valuable resources, both offline and online. For example, check out the real estate sections in local newspapers, look for “For Sale” signs in the neighborhood of your choice, ask around for rental properties for sale, and visit websites that have property listings.
Online websites are an excellent place to search for an investment property. These websites allow you to easily view investment properties from all over the country from the convenience of your laptop, computer, or tablet.
3. Consider Different Types of Investment Properties
It is worth noting that different types of real estate investments come with their potential benefits and pitfalls, which include unique quirks in lending traditions, cash flow cycles, and standards regarding what is deemed normal. The type of investment property you choose will influence your cash flow. This is why you must explore different alternatives in order to find which type provides the best cash flow investments in the neighborhood. An important rule you should keep in mind when purchasing an investment property is that you cannot just purchase the first property that you lay your eyes on.
Usually, multifamily homes are great if you are looking to generate positive cash flow. While they have a higher price tag, they tend to offer better cash flow compared to single-family homes. It is mainly because the management costs per unit are often lower.
There are some other options to analyze different types of investment properties. For example, you may scour for investment properties based on the cap rate, cash on cash return, and rental income that you aspire for. You can also analyze the properties in terms of funding.
4. Perform Comparative Market Analysis
It goes without saying that the best investment property will yield the highest return on your investment. And this is precisely why you need comparative market analysis. So, once you have an idea of what type of investment property you will buy, it is time to perform comparative market analysis. Keep in mind that CMA is essential if you would like to make sure that you are paying a fair price for your property and ending up with positive cash flow. And by calculating the potential cash flow from your investment property, you can calculate other real estate metrics and profitability indicators as well. This comparative market analysis involves finding a few properties that are similar to the property you are considering purchasing which were sold in the last few months. The selling prices of these investment properties will give you an idea of the fair market value (FMV) of the investment property that you intend to buy.
5. Make the Investment
The next step in the process is very obvious – you need to purchase an investment property to generate cash flow from it. In this regard, investing with a partner can be helpful. Although having your own property can make you independent, in many cases, it’s not always the most suitable choice if your main goal is to generate positive cash flow from the property.
With an effective real estate partnership, you and your real estate partners can pull the financial resources together and buy a much larger investment property that can generate more cash flow. Another thing that you should bear in mind during this step is that you will be better off working with an agent, particularly if you are new to real estate investments.
Final Thoughts
Like most other investments, positive cash flow is one of the main driving forces to a successful real estate investment. Although finding positive cash flow investment properties can sound challenging and overwhelming, it is definitely possible if you follow all the steps outlined above. Positive cash flow investment properties are important if you want to develop a sustainable real estate portfolio.