HOW TO ACHIEVE POSITIVE CASH FLOW IN REAL ESTATE


If you’re looking to make money in real estate, then having positive cash flow should be your top priority. Real estate cash flow is the money you have left from your rental income after covering your rental property expenses. This means that you don’t need to keep spending money from your pocket to hold the investment property. Plus, the more cash flow you have, the higher your potential returns will be. On the other hand, if the costs of running a property are more than the income it generates, this makes it a negative cash flow property. No real estate investor wants to end up with this type of property as it means you’re losing money! How can you avoid this happening? Keep reading to learn how to achieve positive cash flow when investing in real estate.

 

#1 Search in the Right Location

Location affects each and every aspect of a rental property, including its cash flow. For example, the rental demand, rent prices, and property costs all vary from one city to another. While it might be convenient to invest in an area that’s close to you, rentals in this area may not be profitable. If that’s the case, you need to search farther if you’re looking to find positive cash flow property for sale. The best cities for cash flow properties are typically those with a strong economy, good job market, and high demand for rentals. For example, many consider college towns the best places to buy rental property because they enjoy stable rental demand.

 

#2 Narrow Down Property Types

After identifying the best city to buy a positive cash flow rental property, you now need to decide what type of property is best to invest in. To make the right decision, you first need to know which property type best suits the area. For example, if you’re investing in a neighborhood nearby school districts, then single-family homes are your best option. If you’re in an area were lots of millennials and young professionals are moving for jobs, you should consider a multifamily property. Next up, you need to determine your budget and the maximum price you can afford to pay for an income property without risking a default on your mortgage payments.

Related: Best Cash Flow Investments in Real Estate: How to Find Them

Find Cash Flow Properties Now

#3 Set the Right Rental Rate

Based on the real estate cash flow definition, the first factor that determines whether your rental property cash flow will be positive or negative is the rental income. As a real estate investor, you need carefully think about how much to charge for rent. If you charge too little, your rental income won’t be enough to cover your expenses. But if your rental rate is too high, you won’t have enough demand and the property could sit empty, making no rental income at all. Thus, a positive cash flow rental property is one that is charged correctly.

The best way to understand the best rental rate to charge for your investment property is through finding and analyzing rental comps. By comparing your property to similar ones in the area, you’ll get a sense of how much other landlords are charging. Accordingly, you can set a competitive rate that attracts potential tenants and still leaves you with profits after paying your expenses.

 

#4 Break Down Property Expenses

The second part of the cash flow real estate formula is the rental property expenses. So, in order to achieve positive cash flow, you need to understand all of the costs and expenses of your rental property business – preferably before buying the property. This allows you to make sure you can cover these costs at first and that the rental income the property will generate will be high enough to cover then later on. When calculating your expenses, you have to include both one-time startup costs (like mortgage down payment) and recurring expenses. These include monthly mortgage payments, maintenance, insurance, property taxes, and others.

You can also add any additional costs that you need to pay which the tool doesn’t already display. Moreover, if you believe you can reduce these costs, you can change the values and our interactive calculator will re-estimate the expected cash flow.

 

#5 Choose the Right Rental Strategy

When investing in rental properties, you can make money by renting out either traditionally (long-term rentals) or on Airbnb (short-term rentals). While you might have a preferred rental strategy, you might not realize that it affects your cash flow. You see, each strategy will yield different rental incomes which, in turn, affect cash flow. So to achieve positive cash flow, you must choose the optimal rental strategy based on your location and real estate data. For example, if your location is considered a tourist destination and data show that the Airbnb occupancy rate is high, then it only makes sense to rent it out as a short-term rental.


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