How to Find Properties that Cash Flow

Understanding Cash Flow Properties

Properties that “cash flow” are properties that generate more rental income than the costs associated with owning and maintaining them, providing owners and investors with a steady stream of revenue. The basic calculation is straightforward:

Cash Flow = Rental Income − Rental Expenses

This fundamental concept is essential for identifying profitable investments and ensuring sustainable growth in your real estate portfolio. While there are other benefits that may justify owning real estate like appreciation and tax advantages, cash flow is often the most exciting, immediate, and tangible.

Strategies for Finding Properties that Cash Flow

Choose the Right Location

Location is paramount in real estate. Focus on areas with strong economic growth, employment opportunities, and population influx. Markets near universities, business hubs, or regions experiencing a tech boom can be particularly lucrative. Research these places well to find where it's best to invest.

Within the same neighborhood, property prices can vary significantly. Lower-priced properties can increase your cash flow potential, especially if they require only small fixes or minor upgrades to attract tenants and earn more rent.

Minimize Expenses

Keeping costs low is a must for keeping your cash flow positive. Invest in things that raise property value, justify higher rents, and attract good tenants. Also, shop around for the best mortgage deals to reduce your monthly repayments. If your target location is too expensive, explore nearby areas that benefit from the same growth. These areas often offer lower entry costs while still promising good rental yields and property values. Decide if you want to be hands-on with your properties or have someone manage them for you. Both ways can work depending on your goals. 

Hidden things that may hurt your cash flow 

When you are evaluating the cash flow potential of a rental property, it is critical that you are accounting for all expenses, not just the month-to-month costs like utilities and lawn maintenance. Insurance and taxes should be at the top of this list. Insurance costs have been rising lately and can range wildly depending on where your property is located. And that year-end tax bill can be shocking if you aren’t budgeting for it throughout the year. 

You should also do your own research on these numbers and not use the current owner’s information. Get quotes from insurance companies and keep in mind that when you purchase a property it may trigger a re-assessment from the County Assessor that raises the yearly tax burden on the property.

You should also plan ahead for capital expenditures (capex). These are major repairs and improvements that your property will need over its lifetime like new HVAC, roof, energy efficient windows, etc. Ideally, you should set aside at least 10% of the property revenue (not profit) each month for capex.

Working with a Broker

Partnering with real estate brokers who are familiar with local markets can significantly enhance your investment strategy. They can help find good properties and negotiate better deals. They also have insights into property that may not be listed publicly, as well as trends in the area influencing positive cash flow in the market.

One of the best things a broker can provide are market-specific recommendations. For example, our brokers in Columbus, Ohio are on the front lines of one of the fastest growing cities in the country. 

By picking the right location, managing costs, and getting advice from experts, you can make smart investments and reach your financial goals.