Investment properties generate cash flow throughout the real estate cycle. The most agile real estate investors take advantage of changing market conditions throughout the cycle, as the demands of regional markets change.
As a result, experienced real estate investors have a portfolio that is continually generating cash through rental income and property sales.
Cash Flow Generated by Flips and Rental Property
Real estate investors who purchase undervalued rental properties and rehab them, have the option to flip the properties for a respectable profit or convert them into rentals to generate long-term cash flow and profits.
Cash flow can be generated both by flips and rental property, but there are pros and cons that should be considered. In particular, flipping properties can create tax and cost issues that are not an issue with long-term rental property investments.
Therefore, when discussing cash flow, and especially passive income, investing in rental properties is often considered a better choice for many real estate investors.
Cash Flowing Rental Properties
To generate cash and profits from rental property, investors purchase undervalued homes that will generate cash flow. The properties are rehabbed appropriate to the neighborhood and prospective tenants. Then the property is rented out, often making use of a property management company.
Properties are not purchased with appreciation in mind, though they are purchased below market value. Rather, properties are purchased expressly to generate cash flow.
To calculate cash flow, subtract all of the property’s monthly expenses from the rent payment.
But the most important question is how to take a rental property and increase the cash flow.
First, control expenses by buying a property that is undervalued and in a good location for rental properties. Then, rehab the property to a condition to attract desirable tenants, while staying within a strict budget.
Then to increase cash flow, rent to stable tenants that will take reasonable care of the property, in addition to living in the property for an extended period of time. Also, regularly inspecting the property can help control expenses and increase cash flow.
You can further cut expenses by managing your own rental properties, but many investors are more inclined to use a property management company.
Lastly, increasing the rent as the market will bear is the easiest way to generate cash flow, since the increase immediately hits the bottom line, unless you are dealing with delayed maintenance issues or unusually high vacancy rates.
Rental Property Expenses
Some real estate investors like to use the 50% rule for estimating expenses, which states that total expenses (not including mortgage payments) for a rental property will be 50% of the monthly rent. So, if the monthly rent collected on a property will be $1,200, the estimated expenses would be $600 a month.
To ensure that you generate cash flow, though, it’s important to estimate each individual expense and not rely on a universal estimate.
Conclusion
Flips can generate cash flow, but along with the short-term profits come headaches that could be avoided by focusing on longer-term investments.
Investing in rental properties is primarily about monthly cash flow rather than appreciation. As properties throw off cash after all expenses are paid, the investor’s equity position increases and the property can be leveraged to purchase additional investments.
Graystone Investment Group
Graystone Investment Group is a real estate wholesaler. We have researched the Tampa Bay area neighborhood-by-neighborhood to determine where investments are likely to have the most most return on capital.
Unlike other wholesaling groups, we find properties that we resell to investors at discount prices, while also connecting them with private financing. We also coordinate with rehab and management companies we’ve worked with for years, at no extra charge.
If you are interested in learning more about highly profitable investment properties in the greater Tampa Bay area, please fill out our Investor Profile or contact us direct.
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