I don’t know anyone that would turn down extra cash – even people with billions like Donald Trump – are on the look for ways to make more money. For the people with typical jobs they are constrained by time – and they don’t have extra time to take on more work to make more money. They feel limited by what their salary is, and many see climbing the corporate ladder or building seniority in a unionized workplace the only way to grow their income. Many think they are not wealthy enough to invest in real estate; however, many people can afford it and can get cash flow from an affordable investment.
I am here to tell you that you can increase your income without using up too much of your limited time and without a huge amount of wealth. You can invest in real estate and not only be profitable each year but actually get extra cash in your pocket each month. Not a shocking new idea – I think a lot of people have been exposed to the concept of real estate investing. However, I don’t think most realize that this option is within their reach. You don’t need to buy an apartment building to actually cash flow – you can start with a single modest home. You will need 20% down to buy an investment property and cash or improvement loan for any needed renovations.
It can be hard to actually cash flow from a property when it is not multi-unit. A single family home often costs around the same or often more than what the market rent can bear. There are people that will still buy a property that breaks even or even loses a bit of cash each month – because they are still making an income and building equity. Their mortgage is being paid down every month by somebody else and the market is generally going up – so those two factors create growth in equity. My husband and I are real estate investors and we understand this concept – but we demand more from our investments – we expect cash flow each month.
There are several ways to find a property that will cash flow. But first you need to find the right Real Estate Agent that is going to help with your needs. Check out PrimoAgents.com and Search for the right Realtor®. If you don’t find one in your area email me at email@example.com and I will search out a great agent for you.
1) Zoning Potential
Look at what the zoning is and see if you can change the use of the property. We once found a single family home – one that had character but otherwise was completely outdated and needed everything done (replace knob and tube wiring, new plumbing, new floors, new kitchen/bathrooms, new roof, new furnace etc.). When other people were looking at the home they just saw the cost of the renovations plus the purchase price and thought the house wasn’t worth buying. My husband Nick has a background in Planning – so he looked at the zoning and saw that this house could be converted to a triplex (probably) or a duplex (certainly). We used our handy spreadsheet and did the numbers. The duplex would make an equity profit and cash flow a small amount each month and we knew this could be done for sure. The triplex would make a large equity profit and cash flow around $2000/month. We were able to jump through a few hoops and turn the property into a triplex. We held it for 4 years before selling it to reinvest.
2) Duplex Potential
Find a home that has a large basement with proper ceiling height that can easily be converted to a duplex. Often you can find a home that has minimal work on the main/upper floor(s) that can be rented soon after purchasing to help cover costs during the basement renovation. Make sure to set the rent for the upper unit at the market rent. If you plan to offer a discount for dealing with the basement renovation then make sure it is done separate from setting their rent (if they stay long term you don’t want a discount to be set in place). Make sure to check the numbers and look for a home that can almost cover costs with the main unit rented and will cash flow once the basement is rented. Duplexes are nice because you are still able to buy just a single family home and make a small investment in renovations, and having 2 units it helps to cover your costs when one unit is vacant.
3) Sever Opportunity
Buy a single family home that has the option to sever the property. Look for a wide frontage. Check your province or state for their land use planning guide. Like this one for Ontario, Canada (Land Severances Guide). Check what fees are involved in applying for the severance. Talk to someone in the Planning department of your City about the property you want to sever. Once severed you have options, one is the option to resell the home and the severed land or another to sell the home and use the money to build on the land.
4) Buy Presale
Buy a presale condo. This is a great option if you want to spread out your downpayment and have spoken to a mortgage broker about qualifying for a second mortgage in the future when the condo will be ready. We invested in a presale condo that was 10% down (spread out over 3 payments) and it took 4 years to build the condo. The market went up during the 4 years. Essentially you are locked in at your purchase price and don’t have to close on the property until later when it is ready. You are building equity and you aren’t actually holding the investment through the period (making money off of your partial downpayment). They key is to make sure you have the additional downpayment and can qualify for a mortgage when it does close. Also check the contract to see if you can rent the property during the occupancy period which can go on for 6 months or so sometimes. We didn’t have this in our contract so Nick (our Realtor®) negotiated to have it put in all of his client’s deals so we would be able to rent the unit and cover our costs during that period. Also make sure you check about HST – if you are renting it out you will have to also pay the full HST at closing and apply for the rebate. Mark can advise you and handle the paperwork for your HST rebate. Check out http://www.rentalrebate.ca/ or email him firstname.lastname@example.org. Mention Nick Carere sent you. Also if you sell your property within a year of it being occupied you may be subject to clawback of the HST rebate.
If you have a property in mind and need help building a cash flow spreadsheet to evaluate it – email me email@example.com and I can make you up a spreadsheet for $75 (which gives you one hour of my time and a detailed spreadsheet). I have a degree in Mathematics and Masters in Business, Entrepreneurship and Technology and can help you out. If I can set you up with a good Real Estate Agent belonging to our PrimoAgents group to work with, this fee will be refunded.
1 thought on “Finding Real Estate Investments that Cash Flow”
excellant article…. when mentioning HST that is canada related so perhaps to be country neutral…. hope others don’t steal your work… this could be couple blogs like a continuing tidbit to keep feeding info to readers…. can do one on the immigrants housing needs as they enter workplace in different countries… some are just renting on first arrival…. another can be about human nature need to move every 5 years …the new society of constant change….. with smaller lots people tire easy & like to change their surroundings…. …potential downside due to job loss & how to be wise finding agent that can serve your needs…..