What is investment property cash flow?
When you buy a rental property, you want to make as much money every month from incoming rent. Cash flow is the amount you make net after all expenses. You will need to determine all relevant expenses including taxes, insurance, mortgage payments, repairs, maintenance, HOA, property management, utilities, vacancies, and any other costs you may incur. There are many cash flow calculators available on the Internet today.
With any property, you will have occasional maintenance and repair expenses. Some of these costs may not occur every month, but you still must account for them. There will be vacancies and repairs on every house at some point during your ownership. For example, you may not have any repairs for two years on a home, but have to spend $5,000 on a new roof in the third year. Make sure that you account adequately for repairs and vacancies when figuring cash flow.
How to increase cash flow by choosing the right rental property in your market
While in real estate, location is the most important factor, the type of home can be equally significant. In the markets in which we invest in single-family homes, cash flow is better than for multifamily homes. This is not the case in every market and it can be vice versa. Do your research and figure out the best type of property available in the market in which you are looking to invest.
We also research the price to rent ratio in the neighborhoods we target. We choose locations where rent prices are significantly higher than ownership costs so they can make more money. We choose suburban neighborhoods where people are more involved in their communities than in large cities. We also choose homes that will attract stable tenants and are easier to rent.
How to increase cash flow by buying rental properties below market value
Put simply, the better deal you can get on an investment property, the more cash flow you are going to see. Buying homes below market value is the best way to get great cash flow and gain instant equity. By leveraging cash, we can buy properties at a discount in order to offer the best ROI to customers.
Why newer homes can increase cash flow on rental properties
Sometimes houses that seem to have the best cash flow are the cheapest in the area. Depending on how well they have been cared for, these homes may not always end up with the most cash flow after repairs and turnover are accounted for. In the markets in which we invest, we shy away from cheap homes that are old, have been neglected, and/or are going to need more maintenance. In general, the newer a home is, the less you are going to spend on repairs, which results in an increase in cash flow.
How stable tenants can increase cash flow
We love single family homes since they promote stable tenants who tend to think of them as their own homes and take better care of them than apartments. Studies show that tenants will also stay in a single family home longer than an apartment. The less turnover and vacancies you have, the higher the cash flow you will receive. If you have to rent a property every year or sooner, and you have a month’s vacancy every year, your cash flow will suffer accordingly.
How to increase cash flow by raising the rent
Rental rates are at an all-time high, and experts are predicting they will increase in the next couple of years. Today, you may be renting a property for $1,000 per month, but this could increase to $1,300 per month in the next 3 years, resulting in a 5% increase in net ROI on a $65k property. Talk about getting great investment property cash flow!
How to increase investment property cash flow by buying more rental properties
In our opinion, the best way to increase cash flow is to buy more cash flowing properties! One property may only cash flow $500-$1000 per month; but when you have ten properties, you can see between $5,000-$10,000 net per month. Keep in mind that this number will continue to increase every couple of years. Buying properties is like building blocks: you start with one and add a couple every few years.
Cash flow is extremely important when investing in long-term rental properties. It is important to do research and come to realize that those houses with the highest price to rent ratios may not always produce the most cash flow. Ease of management, expenses, turnover, and vacancies must be considered when figuring true income. Where you buy, what type of properties, and how you manage your expenses will greatly affect cash flow.
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