How to Find Cash-Flow Properties (2024)

Cash-flow properties offer income to their owners through tenant rent. But if you pick properties poorly, you might find yourself upside down on payments versus income and regularly taking a loss on the investment. Learn the ins and outs of gettings started with properties that offer regular cash flow to you or your business.

Cash-Flow Properties: Defined

A cash-flow property could be one that offers monthly income through a tenant. But be aware, in this scenario, you’ll need to factor in maintenance expenses when calculating the property’s monthly value.

Another way you might make money off owning a property is by holding it until its market value appreciates to a certain point, either because you fixed the property up and turned around and resold it or because you purchased a property in an up-and-coming area.

Buying, selling and renting real estate requires deep market insights and understanding. So enter the space carefully and don’t try to snap up too many properties at once before you’ve tested and tried your hand in the space.

The Advantages of Investing in Cash-Flow Properties

As you start seeking cash-flow properties for sale to get started with this investment strategy, consider the advantages your investment can provide.

Steady Stream of Passive Income

People can live off their property investments, which offer a reliable and consistent source of passive income. While it might not be your primary income source, the extra money can reduce financial stress, help you plan for your future or offer the wiggle room in your monthly budget for nice things, such as eating out or vacationing. Just be sure you’re still putting some of the income away for future property maintenance so you don’t face surprises.

Leveraging Other People’s Money

As you get ready to buy your first rental property, you’ll likely be borrowing money to purchase your investment property. This allows you to use other people’s money to start building your income. In many cases, this offers multiplying returns on the money that you borrow.

Tax Benefits

Real estate investors can take advantage of government-provided tax incentives. These incentives include deductions for mortgage interest, property taxes and depreciation on assets. This can help you make the most of every dollar you make.

Appreciation Potential

With time, most real estate appreciates. That means that when the time comes and you no longer want to manage the property or when the area it is within peaks, you can sell it for a profit.

Hedge Against Inflation

The monthly cost of rent tends to keep up with inflation. So if you manage the property well, your investment will grow at least at the rate of inflation, if not by more. You’ll just need to keep tabs on inflation and be sure you’re increasing rent accordingly.

Diversification

Investing in a variety of assets helps reduce your overall risks. While the stock market offers advantages, as do bonds and other investment vehicles, diversifying your portfolio with real estate can help ensure you see an upside in various market conditions.

Equity Buildup

If you take out a loan to pay for the real estate, you’ll slowly build equity in the property as you use tenant rent income to pay off the mortgage. That means that when you sell the property, you’ll see a larger sum of money back from the investment, thereby increasing your net worth.

Tips for Finding Cash-Flow Properties

Knowing more about real estate investing and management, you might be wondering how to find cash-flow properties. Choosing the right property, pricing rent accordingly and preparing for ongoing maintenance are all important aspects of getting the most from your investment. Here’s a look at tips and strategies for selecting quality properties.

Set Your Investment Goals

Make sure the work of managing your property is worth it to your bottom line. Review your financials to see what kind of mortgage you can afford and how much extra income you’d ideally like to make. Setting investment goals now will ensure you don’t find the management work arduous and frustrating but rewarding and worthwhile.

Determine the amount of passive income you wish to generate, your risk tolerance and the timeframe for achieving your financial objectives. This will help guide what property to invest in.

Research Local Real Estate Markets

One of the largest factors in real estate value is location. Ideally, you want to invest in an area you know well so that you have a clear understanding of whether the property is well-priced and what kind of rental income you can get with it.

Identify areas with high rental demand and potential for property value appreciation. Consider the neighborhood’s schools, amenities, crime rates and job market as you look for the best property.

Select the Right Location

Make sure the property is in a desirable area with plenty of rental income potential. As you evaluate the specific location, consider whether it is an area with strong economic growth, employment opportunities and amenities.

Network with Real Estate Professionals

Get to know local real estate agents, brokers and property managers. These professionals know invaluable market insights and can guide you toward lucrative investment opportunities. You might also learn about off-market deals before they become publicly listed, which can reduce the competition you face for the property.

Analyze Property Cash Flow

Even if a property appears to be a great opportunity, take some time to complete a full financial analysis of the property.

Consider factors such as:

• Rental income
• Vacancy rates
• Property taxes
• Insurance
• Maintenance costs
• Property management fees

Consider long-term expenses, such as roof, HVAC and the age of large appliances. This will tell you what you’ll need to invest in the property over the years to keep it attractive to renters. Aim for properties with strong positive cash flow after deducting all expenses.

Assess Property Condition and Maintenance

Some properties are on the market because they require significant overhauling that the current owners don’t want to undertake. Immediate repairs are something you can build into your mortgage so that it doesn’t impact your savings. But that will increase the amount you need to charge each month to cover your mortgage. Get a good inspector who can go through the property thoroughly to help ensure you don’t experience financial surprises.

Negotiate the Best Deal

The best real estate investors are those with fierce negotiation skills. Do your best to talk the owners down to your ideal purchase price. The less you pay for the property upfront, the more income you’ll see from it each month. Don’t get emotionally involved with a property, and be prepared to walk away if the deal doesn’t meet your criteria.

Secure Financing

Betting financing terms will mean more upside to your investment. Take your time to shop rates and consider alternative funding sources if you can find better terms than you do with traditional lenders. Review interest rates carefully and if it doesn’t add up financially, don’t sign on the dotted line.

The Best Cash-Flow Property Investments You Should Consider

Finding the best cash-flow properties requires understanding various real estate investment types. Here’s a look at some of the most lucrative investment types you can find.

Single-Family Homes

Investing in single-family homes generally is the best starting point for investors. Single-family homes are often simple to manage and familiar to the average investor if they have managed a home themselves. Plus, single-family homes have a wide target demographic, making it easier to keep the property rented, which maximizes your income.

Multifamily Properties

Some examples of multifamily properties are duplexes, triplexes and apartment buildings. This can offer multitenant income, though the upfront cost is generally higher than single-family homes because it requires purchasing more property. But these properties are still very attractive to tenants.

Short-Term Rentals

While short-term properties have grown in popularity over the years with the launch of platforms like Airbnb, they have more complex rental regulations. And to make it more complex, each state and city has its own laws. You might find some neighborhood homeowners associations prohibit short-term rentals.

When buying a property, review the regulations. When you find a good area with favorable terms, these properties can offer higher returns, especially in tourist destinations.

Turnkey Properties

Properties that are fully renovated with professional companies managing them are called turnkey properties. These properties are easy investments and can provide truly passive income because the owner doesn’t have to do any of the work related to maintaining the property.

Real Estate Investment Trusts (REITs)

Investors who truly want to be hands-off with their investments find real estate investment trusts (REITs) the best option for diversifying their portfolios. REITs are publicly traded companies that pool funds to invest in various real estate assets, including cash-flow properties. This is a more complex investment strategy though, so be sure you understand how REITs work before placing your money there.

Build a Diverse Portfolio that is Inflation-Proof

Real estate investments can help diversify your investment portfolio while ensuring your investment is inflation-proof. Start researching real estate markets to find the best investment for you.

Frequently Asked Questions