Is Cashflow King?
New investors often focus on just the properties cash flow when evaluating a new property for purchase. That is a great factor to look at
and very important as if the property isn’t making the money they want, they shouldn’t buy it. What are some other factors that an investor should look at when evaluating a property for purchase?
Is the property rented at above market rents? It is not uncommon to find listings that say the property has below market rents, and the opportunity is there to raise them. A great move for an investor to increase cash flow. Well if the rents are already high (making the property attractive for purchase) it will be harder if not even possible to raise them in the near future. Don’t plan on increasing the rents as quickly.
Is there a negative future development near by? A halfway house being established next door will not help property values. Is there nearby vacant land which is commercially zoned? While it is attractive now when vacant, it could easily have a warehouse built on it and increase truck traffic.
Is there something about the property that will slow future appreciation? Busy street? Nearby commercial influence? Is it a long distance to work and shopping areas? Is there a lot of land available for development? That can make it easy for a “new” house to be built and make your older home less attractive both to rent as well as to sell.
Is the property going to be difficult to rent out? If it is a beach house, the closer to the water the better, being a bike ride to the water is not as attractive or easy to rent is across the street. If you are a long distance to large areas of employment, that can also be something that will make it difficult to rent out. No parking? Small rooms?
Is there a serious structural defect or upcoming major repair coming to the house? Renters don’t care about foundation cracks, it isn’t their problem. It can make for a cheap house, but a big bill to fix your investment.
So new investors need to think about the monthly cash flow a property generates, but they also need to think about the larger impact of property appreciation and repairs can have on the success of their investment.
