Investments in real estate are traditionally done to earn good returns on your investment through appreciation in the value of the property. However, your real estate investment can also generate positive cash flow for you. As an investor, you need to strategize and do a thorough research before investing in a cash flow property. There are many ways in which you can generate cash flow from investing in real estate. The effort and invest period required in each mode is different. Some of these are:
- Renting the property: An investor buys a residential property and gives it to family or an individual on rent. You can use the rental income to repay your mortgage or may be even another property by accumulating these rentals. Do not expand your portfolio beyond which you can’t manage.
- Fix and Flip: Here, an investor buys an old or damaged property at a very low price and which cannot be given on rent/sold immediately. The property needs to repaired and fixed so that you can sell it at a higher price or start earning rentals from it by leasing the property. You need to do a lot of research, invest time, manage contractors and also manage the profit and loss account in doing so. Fixation can sometimes be done by self, however, it also involves lot of time and money.
- Wholesaling and Contract: Under wholesaling, an investor buys and sells the property immediately without making any repairs by earning a small profit. Under contract scheme, the investor invests in a property through under contract and then assigns it to another investor.
- Rentals during vacation: An investor buys a residential property for residing. There may be period when he goes on a vacation for 2 or more months. He can rent out the property during these periods to generate additional income while the property also gets looked after.
- Real Estate Investment Trusts (REIT): REITs are similar to mutual funds but instead of investing in stocks, they invest in real estate properties. Here the REITs collect funds from multiple investors to buy properties. The properties generally include commercial establishments, government buildings or industrial projects. The profit earned from buying and selling these investments is passed onto the investors again. This mode requires lesser effort and time of the investor as the funds are managed by the trusts.
Identifying a cash flow generating property needs a lot of research. Here are a few tips for identifying these cash flow properties. There are many factors, like economic sentiments, infrastructure, location, demography, population, industry potential, etc. which can influence the real estate market rates. Simply buying a property at low price and selling it for higher price is not enough. I recommend below tips when dealing with cash flow generating properties.
- Suburbs tend to give more yields
- Target properties with price 20-40% lower than market median rates
- Diversify with multiple properties
- Look for properties near industrial belt or university
- Renovation can add value to your house and rentals
- Reuse the cash flow generated to invest in another property
These are some great trips on how to help you produce cash flow with real estate investment properties. I personally follow a majority of these and they help me gain a good amount of cash flow. I have started to focus a lot on REIT’s as well since they have a high rate of return and it is a good investment in which i will make another article soon explaining what it is and which REIT to purchase.