Experienced real estate investors know that high cash flow properties have particular physical characteristics. These investors search for properties with these characteristics, and also make sure their properties maintain these characteristics to produce high cash flow.
So, what are the physical characteristics of the best cash flow properties?
#1 The Neighborhood
We only search for investment property in neighborhoods conducive to high cash flow properties.
The quality of the neighborhood in which an investment property is located influences potential tenants either positively or negatively. For example, families with young children want good schools and childcare in a low crime neighborhood.
Here are some of the characteristics of neighborhoods with high cash flow investment properties:
- Average rents.
- Schools desired by young families.
- Amenities, including pools, sports facilities, parks, malls, movie theaters, and public transportation.
- Clean and well-kept streets. When showing a rental property to a prospective tenant, an abandoned car or house can be a deal breaker.
- Quiet, low-traffic streets. Renters and homebuyers alike generally want to live in quiet neighborhoods that are away from traffic.
- Low crime rate.
- No multi-unit housing close to prospective single-family investment houses. Renters of single-family housing often do not want to be close to multi-family housing because of the noise, traffic, etc.
- No long-term empty houses. A neighborhood that has empty houses for extended periods of time is a red flag for renters and investors alike.
#2 The House Looks Like a House
People wanting to rent a house typically want it to look like a house – not a duplex or a factory. They want a place they can feel at home in this day and time, which often means a house with modern and up-to-date styling.
#3 Curb Appeal
Curb appeal should not be ignored, since a prospective renter’s first impression is often times the most important impression.
Homebuyers and renters alike can make their decision on a home based solely on the first impression garnered from the front and entrance of a home, which they translate into what the rest of the house will look like.
Investing in a property that has great curb appeal, or at least the potential for great curb appeal, will pay off over and over again. Homes with the best curb appeal have tasteful landscaping and an inviting entrance, which makes them the homes in highest demand that bring the highest rents.
#4 Ceiling Height
Just as curb appeal gives prospective renters a first impression before entering a home, ceiling height gives a first impression after entering.
Modern homes with nine-foot-high ceilings are desirable, and indicate that the home is up to date. Lower ceilings, though, make the home feel dated, and usually don’t demand higher rents.
#5 Conventional Floor Plan
Along with great curb appeal and ceiling height, the best rental properties for cash flow have a conventional floor plan.
The most desired features in a home’s layout include:
- open concept
- ensuite master bath
- walk-in closet in master bedroom
- separate laundry room
- garage storage space
- eat-in kitchen
- walk-in kitchen pantry
Renters want a home that is modern in style, and as a result, these properties typically have higher rents and yield higher cash flow.
#6 Kitchen Size, Modern Fixtures and Appliances
Corresponding to a conventional floor plan, a good sized kitchen with modern fixtures and appliances is on renters’ list of desired features.
Renters are looking for homes with stainless steel appliances, a kitchen island, and an eat-in kitchen, and they are willing to pay more for these features, meaning these homes can be among the best cash flow properties.
#7 Closets and Storage
Today’s renters are also looking at overall storage space. Generous closets in every bedroom, especially a spacious closet in the master, as well as a walk-in pantry are high on their list.
The best cash flow properties must have well thought out storage solutions that tick all the renters’ boxes.
Outdoor living space is one of the top features desired by renters. Having a usable backyard for entertaining and recreation is one of the key characteristics of the best cash flow properties.
Parking is a “must-have” for most renters. As a rule of thumb, a rental property must have a minimum of two parking spaces to have the potential of being one of the best cash flow properties.
#10 Rehabable Property
Most investment properties need to be rehabbed to some degree when purchased. Determining whether the property is rehabable within the parameters of your investment strategy is very important when investing in real estate.
When initially inspecting a property, key items to consider are:
- Roof: The roof must have at least 3 years of life or be replaced. Look for exterior signs of wood root, termite damage, and loose shingles. And look for interior signs of water stains, discoloration, and holes in the ceiling.
- Structure: Structural problems could result in substantial repairs. Look for cracks in the foundation, windows and doors that do not open and close properly, cracks in walls and on floors.
- Electrical: Check to see that the electrical is up to code, while also checking the heating and air conditioning units.
- Plumbing: Check the plumbing under sinks, and look for uneven spots in bathrooms and the kitchen. Outside the property, look for large trees with roots growing under the house.
- Walls and Ceilings: Check for major repairs.
- Floors: Check to see whether the floors are level, and determine whether the flooring can be rehabbed or must be replaced.
If your inspection doesn’t include a contractor, it’s helpful to consult a professional before purchasing the property, especially if there are signs of structural damage.
Recognizing the physical characteristics of the best cash flow properties can become a 6th sense. By applying general principals, with the experience of what works best in a specific geographic region, a portfolio of profitable properties with high cash flow can substantially increase your investment profits.