Cash flow refers to cash inflow and outflow. There are two types of cash flows; positive and negative cash flows.
A positive cash flow is where the money flowing in of your business is more than its expenses. A negative cash flow is the opposite; the money flowing out of your business is more than the money flowing in.
If you are having problems finding investment property with a positive cash flow, this guide offers tips on how to find them and turn around your real estate business.
Cash Flow for Investment Properties
Cash flow can mean different things depending on the industry. In real estate, cash flow can be in terms of market value appreciation over the long term and collecting rent from tenants while also paying the expenses for the maintenance of your property.
As a realtor, your goal should be identifying properties that will turn in a profit, with all factors like annual rental income, annual expenses, tax, mortgage, and vacancy considered.
If you are a startup realtor, this guide to buying a house is a good read for critical industry tips before you buy your first house. It would help if you also considered talking to experts in the industry to avoid making costly mistakes.
How to Find Positive Cash Flow Properties
1. Choose Your Location Wisely
The location of the property you invest in is a big factor in the kind of cash flow you can expect from a property. Many new investors prefer buying property in an area closer to where they live.
Unfortunately, this approach may not be the best if you want to turn a profit, so the best approach is to make investment decisions based on market research. Locations on a growth trajectory and where predictions show potential population increases, such as near universities and colleges or where big businesses are moving in, are best.
However, you must be mindful of your target clientele, as not all areas will fit your target clientele. Properties in areas with projected growth may be a little expensive, but the investment will be worthwhile in the long run.
2. Consider Community Context
You could identify a location but find the cost of buying a property in the region out of your reach. But that should not mean you can’t cash in on a region’s boom. For example, if your target was a specific suburb with rental income rates looking upward, you could consider acquiring cheaper property in an area adjacent to the suburb.
An increase in rental prices in the suburbs is often accompanied by a rise in rents in adjacent locations, as some people who may not afford rent in the suburbs will opt for neighboring areas.
3. Find Off-Market Properties
The cost of the property you buy determines the mortgage you borrow, your monthly repayments, and the returns you get from a property. The cheaper the property, the higher the returns will be, but only if the lower price doesn’t affect the quality of the property you buy.
The best way of finding positive cash flow properties for less is by buying off-market properties such as REO properties, bank-owned homes, and foreclosures. Off-market properties have far less competition, meaning you could get a property at a low price.
4. Focus On Cheaper Property
Properties in the same neighborhood can have different prices based on factors such as age, condition, and features. As a business person, your aim should be to go for the cheapest options without compromising the quality of the property you buy.
The best price range to look at is properties that are 20-40% below the median price for the location. Sometimes, you may need to invest some amount in upgrading the properties to ensure you maximize the income you get from them once you place them back on the market as rentals.
5. Register Your Real Estate Business’s Intellectual Property
Perceptions can hugely impact the performance of your real estate business. If potential customers perceive your company as stable, they will more readily be willing to get accommodation from your rentals. Perceptions are also critical when seeking funding from lenders.
The easiest way of improving perceptions of your business is by registering your business’s name and logos as your trademarks. Registering your trademarks gives you an exclusive right to use them and use the ® sign on your material, which helps improve perceptions.
The first step in registering your trademarks is conducting trademark searches to ensure they are unique and registrable. If approved, your trademark protections will run for a renewable term of 10 years.
6. Minimize Your Expenses
Sometimes, the problem with cash flow may not be the cost of the property you invest in but its expenses. So, be mindful of your expenses by ensuring that you only spend money on absolute necessities without compromising on the experiences of your tenants.
You can also consider increasing rental costs by adding value, such as providing additional features that your tenants may need. This option can have a high cost initially, but you will recover with time.
You can also look at better deals from mortgage lenders. The lower the mortgage, the lower your monthly repayments, which can make a big difference.