Cash Flow at a Glance – Analyzing Potential Rental Properties

I spend a little bit of time each day looking at all the new properties available for sale in my market. Certain properties stand out as prime candidates for investment. A significantly discounted price obviously jumps out. But there are also many properties that don't have anything quite so outstanding or special to recommend them as investments. Before I spend my time analyzing every property in my market to see if it might make a good rental, I keep my eye out for certain less glamorous markers that indicate it is worth a closer look.

Here are some of the things I take into account as I skim lists of properties:

This may seem obvious – but a quick glance at the sales price of the home can often tell you if the property has the chance of cash flowing. While certain areas do command more rent and larger, prettier houses can also see higher rents, overall these factors are not usually significant enough to justify a much higher price. Over time, you will see that properties over a certain price just won't cash flow in your market. This allows you to quickly skim by price and ignore the deals that exceed a certain amount.

Price per bedroom is a big one. If the price per bedroom is comparatively low, this property has a better chance of cash flowing as a rental.

HOA fees can be a big red flag. Condos are notorious for having cash flow killing HOA fees. If you're paying $200 plus a month to an HOA, then it needs to be a really, really, great deal in order to cash flow. Single family homes can also have large HOA fees, but typically they aren't anywhere close to the steep monthly amounts of condos. Some single family homes have annual fees of only $200. This makes a huge difference when assessing cash flow.

The more you look at properties for sale, the more you'll discover the criteria that makes a property more likely to cash flow in your own market. Experience is the only way to be able to tell at a glance if a property is worth a closer look. You need to see many deals and analyze their numbers to get a feel for what works. Happy deal hunting!

Until my next post,

James