How to create ‘cash flow positive’ property

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How to create ‘cash flow positive’ property ? When you purchase an investment property, your main goal is to maximize ROI, and the best investment property to reach that goal is the property that cash flows positively.

The proper way to calculate cash flow is to add up all collected rent from the property and subtract all expenses. The expenses that should be accounted for are:

  • Property Taxes
  • Mortgage Payments
  • Insurance
  • Property Management (6% – 10% of rents collected)
  • Condo fees (if applicable)
  • Utilities (if paid by landlord)
  • Maintenance (3%– 8% of rents collected)
  • Second mortgage/HELOC payments (if applicable)
  • Vacancy (2.5%)

The more rent you collect, the better chance the property will cash flow positively.

 

In Ontario, it is extremely difficult to find turnkey cash-flowing properties. We at Forward Investments Group realize this and instead, we create such a property ourselves. The simplest way to achieve this is to buy a single-family home in the right zoning and add a second suite – usually in the basement. Single-family starter homes in any city in Ontario would not cash flow with a mortgage secured against it, so to combat this, we buy a property in a good area with proper zoning and build additional units to generate extra income.

 

Once the second unit is created the financials will look like this:

The mortgage payment in this sample is based on a 3% 30 years amortization and a total of $464,000.00 for the initial amount.

Vacancy and maintenance provisions are not every month’s expense, so they are also extra cash flow.

Without a second unit, this single-family home would rent for $2,400, meaning it would cash flow negatively by -$500 every month.

Highly profitable BRRR strategy

To achieve higher rents, we utilize the strategy known as Buy – Renovate – Rent – Refinance (BRRR).

Here is the flow:
  • Buy a single-family home
  • Renovate and add a legal second unit
  • Rent both units out
  • Refinance – the property will be valued a lot higher which will allow you to get all your renovation capital out plus some of the down payment funds

Below you can find an example in numbers:

 

As you can see, after renovation and refinancing, the investor in the example is getting back most of the money and some of the initial down-payment. The new equity being generated is about $58,000 which is obviously substantial for just 2 to 3 months’ work.

I trust you learned some valuable information about “How to create ‘cash flow positive’ property”

Please contact Vlad and book a no-obligation free consultation to learn more and to get ahead in creating cashflow positive properties.