If you are among the Cash Flow Real Estate Investors, your number one objective and the first thing you will want to determine is, “will your cash flow be sustainable?”
When investing in cash flow properties the following types of properties and locations will represent your search. It, of course, starts with the obvious, a well-priced property. BUT your search should continue far beyond a low priced property! Here are some attributes that should be incorporated into the makeup of a cash flow property:
- The property is structurally sound and priced to match the condition of the property
- The property should be located near places of employment
- Located near bus stops if it is an inner city property (inner city properties can be great for cash flow)
- Cash flow properties are typically within a medium social economic (or what one may call a C Class neighborhood – find out more about neighborhoods in What Is Your Real Estate Investment Style?)
These attributes within a property will help you to gain good cash flow. BUT, cash flow is only great if it is sustainable.
Here are a few areas that you, as a purposeful real estate investor, will want to incorporate into your search for a great cash flow property. These things are almost never discussed and represent the difference between a GOOD cash flow property and a GREAT cash flow property.
- Landlord expenses come right out of your cash flow so you want a property that has each rental unit separately metered (utilities) and the tenant to pay for all utilities
- Located within the best locations, not just best location within the city but within markets that will produce the highest NET RETURNS
- Markets with high percentage tenants (this insures low vacancies and higher returns)
- Markets with low housing insurance costs – insurance costs are tied to probability of an area for making insurance claims, so low risk areas with little to no, earthquake, tornado, hurricane type of activity represents lower insurance bills and that leads to higher cash flow for you
- Markets with low property taxes
- The properties should offer high landlord controls such as a single family house or an owned multifamily building – condos and town homes may produce good cash flow but have few landlord controls over the association fees and therefore may not be a sustainable cash flow
In today’s economy, you can find cash flowing property in any U.S.A. city. Do not be misled into thinking these are all great investments. The investments need to not only have great cash flow the day you buy it, but also need to be sustainable over time. Again, this is an item NEVER discussed by most people and is the difference of a good investment (that may go bad) and a great investment.
For a property to be able to sustain a good investment, you need all the items listed above AND you need to make sure the property is not suffering from deferred maintenance. Nothing will attack your cash flow faster than a property that has deferred maintenance. In fact, often deferred maintenance is what may make the property appear to have great cash flow.
When a property has not been routinely maintained and/or updated, the expenses tend to be very low. The low expenses make the numbers of the pro-forma look great, when in fact you need to make large capital outlays of cash to update it. This will kill your cash flow faster than you will even see it coming.
These deferred maintenance properties may be good investments when purchased correctly and you’re looking for a value play. Often, however, these value play properties that should be sold very inexpensively are disguised as a great cash flow property with great returns. It takes a trained eye to tell the difference between a great cash flow property with a great price and an overpriced value play disguised as a cash flow property.
Be purposeful – maybe you want to use this post as a check list so you can determine if indeed your next purchase will be a Great (SUSTAINABLE) Cash Flow investment.
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