Cash flow real estate investing is the first type of property investment that we will be discussing. If you would like to learn about other types of investing, check out our post, What Is Your Real Estate Investment Style.
All seasoned investors know that regardless of what you are investing in or why you are investing, the number one element you need to have is Cash Flow! Some investors ONLY care about cash flow and they know what the Donald Trumps and the Robert Kiyosakis of the world already know. There are markets which are better than others for generating Cash Flow. Generating cash flow takes much more than a great purchase price.
Cash Flow Real Estate Investing Demands Elements of Location
- Great rental demand area
- A low tax base area
- Large variety of working class jobs
- Large enough population to sustain these business to keep the jobs
- An area with low insurance costs
- An area with a 1% to 3% and higher monthly return on rent versus purchase price
The 1% rule
It use to be said that an investment purchase should have monthly rents equal to at least 1% of the purchase price of the property. For example, I live in the Tampa Bay real estate market where the average three bed, two bath, two car garage home that an investor would purchase is going to run about $100K+. They can rent this for about $800 to $1000 – this is 1% at best. Tampa has a Real Estate tax base that hovers around 2% and because of our hurricane status we pay around 1% of purchase price for insurance.
A similar purchase in a strong Cash Flow Market such as Memphis will decrease the price and expense ratio and give you a 2% return.
Places like Cleveland Ohio and Kansas City Missouri are known to pull in almost 3% of monthly rent to the purchase price!
It is important to know that within each market there are better locations than others to invest in. Do not confuse great cash flow in an old run down building with deferred maintenance as a good investment. This may absorb all your cash flow to bring the property back up to standards. It takes massive amounts of diligence like we do every day here at the Equity Builders Group to identify great areas in great locations that will give you both massive cash flow and a great product.
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