With the recession in full force, a few amazing deals are coming up that should be fully taken advantage during times of recession. The first thing is that stock prices drop to record lows, the second major event is lending rates plummet to record lows, and the third deal is that property values get to the level that you can begin to buy positive cash flow properties.
Positive cash flow properties are a big ticket item that property investors could only dream of during booming eras; however, during recessional times, these properties become available; however, the property investor no longer has the available funds to take advantage of these amazing deals.
What is a Positive Cash Flow Property?
A positive cash flow property is a property that after all the deductions required with owning and operating are deducted from the revenue that is obtained from the property. The revenue is summed up as the value of all rent collected from all units. The deductions include the mortgage payment, the property taxes, the heating costs, and the utility costs. To have a truly positive cash flow property, you must collect at least 110% in revenue versus the deductions of the property. This will account for the time frames when a unit is vacant or rental payments are not being paid. This also accounts for any repairs that must be done to the property. This 10% extra revenue will allow for you to keep the property up to date and the tenants happy.
Why are Positive Cash Flow Properties Amazing?
Positive cash flow properties are something that anyone should get into for a multitude of reasons. To begin, the property is relatively self-sufficient. The rent that is collected pays off all the expenses of the property as well as leaves you with some money available to cover any extra expenses. As the property ages, the value of the property will most likely increase. The equity that you build in the property will also increase as you pay the mortgage down more and more. The equity that you build in this property can also be used to purchase more properties of this type; however, these opportunities do not come up everyday. They are mostly prevalent during times of recession because property values decrease while rent payments increase due to supply and demand.
Some examples of Positive Cash Flow Properties
A lot of properties claim to be positive cash flow properties; however, they do not take into account utilities or property taxes. They only take into account the mortgage payment. Before actually purchasing a positive cash flow property, it is best to contact a professional property appraisal with a fair market rent of the property to determine how much the property is able to be rented for.
Once this is determined, you can also ask the agent what the annual utility costs are. It is best for the tenants to pay for their own utilities to avoid over consumption of the utilities.
An example of positive cash flow property is a one bedroom condo. The condo sells for $160,000. The condo rents for approximately $1175/month. The mortgage payments, at the lowest possible, are $705.28. The condo fees are $200/month. The property taxes are $150/month. The total expenses $1055.28/month. This means that 111% of the revenue collected is valued over the expenses. This unit is self-sufficient without the owner having to add any of his own capital.
Positive cash flow properties can be amazing finds when you are able to find them. If you are willing to put in the time and effort to maintain the property and find good tenants, then a positive cash flow property may be a great investment for you. It may help you to build the equity for retirement, income subsidization, or just property investment. If this is something you are interested in, then it is best to speak with a mortgage professional and see if this is a right decision for you. Contact us if you would like to speak further about this by leaving a comment or by emailing us.
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