How do real estate investors ensure long-term positive cash flow? In the following article, Ron Cadman discusses the concept of positive cash flow real estate, and how to optimize real estate investments so that they generate solid returns. Ron Cadman is co-founder of the real estate investment firm, Investar USA.
Simply put, a positive cash flow real estate investment is an investment that turns a consistent profit. If your rental income can cover all expenses, including taxes, maintenance, management fees, mortgage payments, repairs, insurance, and then some, congratulations! You have positive cash flow.
But positive cash flow can be a challenge to achieve. Why are real estate investments simultaneously so rewarding, and so scary?
Real estate investments are possibly the most sensible financial investments that either a novice or a highly experienced investor can make. Real estate will always be a revenue-generator, and with all of the tax advantages and government incentives, it would be quite foolish for any prospective investors not to consider real estate.
Also, real estate is a tangible asset whose value can be influenced – if not outright controlled – by the owner. This is a rare advantage, because few investment assets appreciate in value due to actions taken by the owner. If you buy stocks, there is precious little you can legally do to drive up their price.
However, real estate investment can be a nerve-wracking prospect. Property ownership and responsibility is very grown-upcan be difficult, and as an owner of a residential property, you are responsible for the living conditions of your tenants, and are obligated to provide consistent property management under all conditions. That can be expensive if you don’t approach it strategically.
If you want positive cash flow from your real estate rental investment, here are a few methods of assuring success.
- Perform extensive location research. Detailed knowledge about your investment location – including if and when new developments are going up, if there will be new public transportation options, if a sports center is about to be constructed – will help you maximize your return. Befriending a few city council membersCreating positive relationships in the market is always a great idea!
- Stay with your market so long as that market remains strong. Once you’ve found a market and gotten to know it well, you’ll be in a great position to make solid investments in the same location.
- Select good tenants. Unfortunately, none of us has a crystal ball and therefore cannot predict with 100 percent certainty who will be a great tenant and who will be a waking nightmare, but we can screen carefully. You should also look for tenants who will want to stay for a long period of time, reducing the likelihood of vacancies.
- Maintain your property well. Well-managed rental properties are of greater value to renters. You want to be able to charge as much as you reasonably can to assure positive cash flow and low tenant turnover.
Real estate investment takes a fair amount of work, but the benefits can be substantialare legion. From fantastic tax breaks to consistent income, smart real estate investment can earn you long-term financial security.
Ron Cadman is a 30-year real estate investment professional, and co-founder of real estate investment firms in the United States and Canada.