Cash Flow Investments and its Pros and Cons
To generate surplus cash flow, you have to use the positive cash flow property investment strategy which involves finding properties where monthly income is higher than holding costs.
The good thing about positive cash flow strategy is the advantage of owning income-generating assets, including having access to an extra income stream every month.
Real estate investment is a gold mine and having the right cash flow strategy can make you build and increase your wealth every month and this article will show you what cash flow investments is all about as well as the pros and cons that comes with it.
For the purpose of the tax, it is important to know that your rental income includes the following;
- Late rent
- Advance rent
- Insurance payments from damages
When calculating monthly expenses, start with mortgage repayments and these depend on the interest rate of your loan or equity stake. Other expenses include;
- Taxes and charges
- Property management fees
- Maintenance and repairs
- Agent fees for bringing in tenants
People often make the mistake of overlooking additional expenses like the above and only compare the mortgage repayment against the rental return.
Maintenance cost can be substantial on older properties and while property income can be relatively predictable, holding costs can be difficult to nail. It is good to know what you are up against as part of your due diligence process.
Pros and Cons of the Positive Cash Flow Strategy
1. Properties that appreciate quickly and are cash flow positive are often seen as the gold mine for property investors. If these properties have a lot of potentials, it can quickly create wealth for the investor as well as a good return on investment in the future.
2. Positive cash flow properties can make investors attractive to lenders. It is very easy to take up any loan when lenders can see that your real estate property has a positive cash flow that is profitable every month. If lenders can’t see the possibility of you having a good return on your investment as well as being able to pay up your loan, it makes the lending process very difficult and sometimes impossible.
3. Cash flow properties can give you a well-balanced portfolio because the extra cash will be used to pay up some expenses that may be associated with high capital growth potential. If you have a positive cash flow, you can be able to clear up some gaps in your expenses as well as pay up for some shortfalls.
4. Having good access to a monthly income stream always has an obvious appeal and this entry point is excellent for first-time investors. If you are a first-time real estate investor, you can harness positive cash flow and make a good monthly income for yourself and your family.
1. These properties could be in an environment with low growth potential in the future. Properties in such areas with a dim future can be risky because it makes this positive cash flow system only survive for a short period of time.
2. The positive income that is generated is taxable and this makes it difficult to build a real wealth of your property monthly income alone.
3. Sometimes these properties have an unhealthy yield and a weak capital growth potential over a long period of time. This varies from property to property as well.
How to Properly Search for Positive Cash Flow Properties
Some people prefer to wait until much of their loan is paid off and for rental income to rise over time. Some others prefer to buy a property in a high rental paying neighborhood.
The positive cash flow buying process includes the following;
1. Using multiple search strategies to find high yielding properties. Analyze the best match for you as well as the highest net cash flow. DpKay Homes has several properties to suit your investment taste and investing in any of DpKay’s properties will definitely give you positive cash flow because the properties are located in areas with a high yielding future.
2. Check the suburb to find out the average time to sell, clearance rates, discount rates, and capital growth rate. Initiate your search around properties with a high rental market as well as potentially in high demand.
3. Forecast the property growth and cash flow for the long term. Before you invest in any property, try and look into the future of that property in order for you to make the right decision and know if your investment will be worth it or not. Estimate a market valuation for the property and check recent sales that are comparable.
4. When your income rates are at low points in the cycle, fix it.
5. After analyzing, set a maximum purchase price this will definitely deliver a positive cash flow returns.
6. Look to drive yields by buying a property under the median of 20-40%
7. Invest in a double income property.
8. Carry out renovations that increase the property’s rental market and desirability by either increasing the income it provides or reducing your expenses. This can change a negative future outcome of a property to a positive cash flow property.
Longevity of Cashflow
Accomplishing a great cash flow from your real estate property is the key to having long-lasting positive cash flow and it is a necessity to several investors. It is advisable to use the strategies discussed to have a high rental yield and retain regular cash flow.
Do You Want to Find Your Next Positive Cash Flow Investment?
Dpkay Homes helps great investors like you with their expertise in the real estate market. If you will like to find out how we can help you purchase your next investment property, a great way to start is to book an appointment with us and we will be delighted to help you.