To do so, follow these strategies:
1. Add up all of the expenses of the rental property from rent, insurance and maintenance costs, and make sure there is money left over for you. Positive cashflow means profit.
2. Buy more income-producing assets with your profits but have a money cushion for any unexpected expenditures.
3. Choose properties carefully and do the homework (due diligence) on them. That way you avoid negative situations and struggles to keep up. If the analysis implies negative cash flow, pass on the property.
So, how to tell when a rental property is a profitable choice?
Ask questions and know the investment niche or category you are considering. Market knowledge is part of understanding a real estate niche. In case of tenants, conduct proper background checking. This includes talking to previous landlords about how tenants left their former residences etc. but know that references can be tricky.
The best scenario for positive cashflow investing is finding properties without any or much hands-on management. Hiring a property management company may make sense, especially when owning several properties in the same area.
In case of one rental property only, property management might drag down any positive cashflow. Many vacation rentals can offer this positive cashflow but vacation rental profitability depends on a number of important different factors.
In summary, complete thorough due diligence, remain patient, and know when to pass. In looking at several rental property scenarios, think them through and plan for them. Then, if the positive outweighs the negative, move forward and reap the benefits of cashflow investing.
