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In real estate investments, there are two ways to make money from your investments. They can either appreciate in value over time or you can collect rent from tenants. While every real estate investor hopes that their property will increase in value the longer they hold onto it, there’s no guarantee on that.
On the other hand, the cash flow option provides a more reliable and predictable source of income and return on the initial investment. Plus, with rental income, the investor does not need to wait until a later sale to make money from their investment, they can start making money from cash flow positive homes as soon as their tenant pays rent.
Cash flow is simply the difference between income and expenses. Cash flow positive means that once everything has been paid in a given month, there is a positive amount of income leftover. Cash flow negative means that at the end of the month, the investor had to pay more expenses than the income on a given property.
When looking into investment properties, the investor should evaluate the listing to determine whether it is a cash flow-positive property before moving forward with any step in the sales process.
Ideally, the income on an investment property would cover the mortgage, insurance, and property taxes with the remainder going directly into the pocket of the investor. Real-life investment doesn't always go to plan, especially the longer the property is owned.
At some point, the property needs maintenance or repairs, and units may be left vacant as you try to find the next renter to take over. These expenses are often unpredictable but still should be taken into consideration when determining the potential cash flow for an investment property.
You can factor in estimated repair expenses based on the age of the property; newer properties will require less maintenance while older properties may have frequent repairs that need to be made. Some real estate investors factor in 5-15% of the monthly rent for repairs in their cash flow calculations.
Similarly, investors will need to plan for when no tenant is living at the property. They should factor this into their cash flow calculations every month to offset the time spent searching for a new tenant. To factor this in, some investors assume that the property will sit vacant for one month out of the year, and add in another 10% of rent to monthly expenses to make up for the loss in income. If the calculated expenses for maintenance or vacancy are not needed, that is better for the bottom line but is an unrealistic expectation.
Typically, investors partner with property management companies who have experience in understanding month-to-month management of rental homes, which includes unforeseen, but expected, costs at different times.
While determining cash flow is the same process anywhere that you may be interested in making real estate investments, Memphis is the perfect place to invest in cash flow positive properties. While the city is home to 1.4 million residents, it is still growing every day. It is a young city, attractive to millennials and young professionals due to its affordable price tag.
With the average age at only 36, Memphis is attracting the exact demographic that moves frequently and rents properties. At the same time, many families choose to rent as it gives them more flexibility. Plus, shortages of newly built homes have been driving people to rent for longer, as it can be difficult to close on a home that is typically listed for short amounts of time.
When you are ready to invest in a Memphis property, Memphis Cashflow is the experienced partner you need to make the jump into investment property ownership. Memphis Cashflow is well versed in the many diverse neighborhoods of the city, helping you to find the right property to invest in.
Having an experienced partner will help you to choose the property that makes sense from an investment standpoint, rather than ones you feel emotionally attached to. Memphis Cashflow offers turnkey properties, which are ready to be rented out as soon as the deal is closed. Sometimes the property comes with a tenant already inhabiting the property, making the process of owning rental properties even easier.
Ready to invest in Memphis turnkey properties? Connect with us today!