What Types Of Investments Offer the Best Cash Flow - Article Banner

Real estate investors have a lot of choices when it comes to what types of properties to buy, where to buy them, and how to manage them. You can invest in commercial properties, residential homes, and even farmland. You can invest in single-family homes, condos, townhouses, apartment buildings, duplexes, and mobile homes. You can elect to make sure all of your properties come with long-term leases, or you can focus on short-term vacation rentals. 

What you choose will depend on your investment goals as well as the location of your targeted investments. Beach rentals for vacationing surfers won’t be your best ideal in Idaho Falls, for example. 

If you’re investing in order to earn as much cash flow as possible, we’re going to recommend residential multifamily investments every time. Not only do you get to access some great cash flow, you also have less risk than single-family homes or vacation properties. 

You need to buy the right investments. High cash flow depends on a well-located investment property that either has tenants in it already or can easily attract reliable, well-qualified residents who can be trusted to pay rent on time and renew their lease agreements year after year. 

Multifamily investments cover a variety of different investment types. We’re taking a look at where you’ll find the best cash flow as an investment in Pocatello, Idaho Falls, or anywhere nearby.

The Case for Multifamily Investments

Investing in multifamily properties makes sense for investors who are looking for reliable cash flow and a growing portfolio of properties with low vacancy risk. 

Here’s why we like multifamily investments, whether you’re diversifying an existing portfolio or looking for ways to bring in more rental income every month:

  • Multifamily properties in this market help you reduce your vacancy risk, because you always have more than one source of rental income. 
  • Multifamily properties are also more cost-effective when it comes to maintenance and management. When we look at unit economics, you’re paying less per unit for services such as HVAC inspections, cleaning, landscaping, and property management.

There are some excellent reasons to invest in multifamily properties, and we’re sharing some insight into why these make excellent investments, particularly from a cash flow perspective. 

Less Vacancy Loss Equals More Income with Multifamily Properties 

The rental market in Idaho Falls and Pocatello continues to be competitive and strong, especially for owners with affordable properties in good locations. We don’t see any reason that this will change. There’s a low vacancy and high occupancy rate, thanks to recent sales prices that skyrocketed and higher interest rates, driving mortgages to be more expensive. This trend has kept people in rental homes for longer. You’re not likely to worry too much about vacancy. 

But, markets change, and protecting yourself against unexpected vacancy costs is always a good idea. Luckily, investing in multifamily properties will protect you against the risk and the expense of vacancy.

When you rent out a single-family home, you lose that income as soon as your tenant moves out. There are turnover costs to cover and maintenance to attend to, and all the while you’re paying for the utilities, the landscaping, and ultimately the marketing and advertising costs that will find you a new tenant. You’re paying for all those things without having any rent coming in. 

That’s expensive. It’s hard to maintain a consistent cash flow, let alone a positive cash flow.

When you rent out units in a multifamily property, however, you have multiple income streams coming from the same property. If you have a six-unit building and one tenant moves out, that vacancy will hurt. But it won’t completely interrupt your cash flow. You still have rent payments from your five other tenants, which will cover you during the turnover period.

It’s better risk management. 

Acquisition Costs and Cash Flow

Typically, a multifamily building will cost more than one single-family home. You’re getting a more valuable property. 

When you do the math, however, you’ll find that there’s a lower per-unit acquisition cost. You’re paying more, but you’re receiving several units, which increases your cash flow almost right out of the gate, not to mention your long term ROI. 

A lot of rental property investors must prepare themselves for a few years of negative cash flow or breaking even when they invest in a single-family home. The expenses will simply outpace the rental income, at least for a little while. This does not have to happen with multifamily properties. You can expect to see a profit right away, as long as you’re at or near full occupancy. 

You’ll have different options when it comes to how you finance your multifamily property as well. Many of the experienced investors we work with leverage the property type in order to attract better lending deals. 

As a multifamily investor, you can likely find lenders who are willing to offer better rates on loans for multifamily properties. They understand the potential rental income that’s earned off a multifamily property. They understand that the risk of default and foreclosure drops dramatically. 

Lower Per-Unit Costs with Maintenance and Management

When you have an apartment building with multiple units, getting maintenance work done on those properties is a lot easier, cheaper, and faster than it would be to dispatch maintenance teams to five or 10 separate single-family homes around the city of Pocatello or Idaho Falls. 

Multifamily properties make more financial sense, especially when it comes to preventative issues like pest control, roofing, HVAC servicing, and plumbing. Your vendors will appreciate the volume of work you’re giving them, and they’ll give you a lower rate per unit. 

It’s the same for property management. Most of the property managers you talk to will charge loss for those units in multifamily buildings than they’ll charge to manage your single-family homes individually.

Buy for Occupancy and Location 

Good TenantsStabilized cash-flowing properties are almost always going to be real estate assets that already have good tenants in place. They are also in desirable locations, and they won’t require a large investment from you to bring them up to current standards. They won’t need rehab or major repairs. A few cosmetic updates, maybe, but nothing that requires substantial improvements. 

If you’re looking to cash flow right away, buy a building that has an occupancy rate that’s as high as possible. Look to get as close to 100% as possible. 

From a cash flow perspective, these types of properties have the most predictable income for you. Examine the leases, identify which tenants are potential turnovers, and do what you can to keep them in place. Maybe it’s the incentive of a new appliance or a renewal rate that’s just below market rents. 

Without a high turnover rate and a lot of vacancy, you can calculate the cash flow you’ll earn on a property for years to come. This is a huge benefit to your portfolio and your predicted success. 

Hold the property beyond the term of the current annual leases. Market data from a local property management company can help you predict occupancy, real estate taxes, operating expenses, and rent increases for future tenants. As an owner, your primary focus is keeping the property leased, maintained, and properly managed. 

This is a conservative way to invest in real estate, but it’s the most effective type of investment when you’re looking to prioritize cash flow. 

Location will always count towards your cash flow. When you buy property that’s in a desirable neighborhood, close to schools and shopping and recreation and good restaurants, you know you’ll be able to charge more in rent than you would for a property that’s more remote or in a distressed area. You can’t increase your cash flow when you can’t increase your rents, so be strategic about where you buy. You can always change a property’s condition, amenities, and rules around things like pets and parking. You can never change its location. 

When you’re looking for a property that will cash flow for you right away, focus on the multifamily properties that are available. Drill down into occupancy rates, take a look at lease agreements, and put together a tenant profile. 

Choosing the right multifamily property to invest in is your first step. 

Make sure you’re leveraging the help and the expertise of local property managers. As a property management company in Pocatello and serving Idaho Falls, we work with investors to find the right properties all the time. We understand the market extremely well, and we believe there’s a lot of money to be made when you’re willing to invest in multifamily properties

Whether you’re investing for the first time or looking to diversify your portfolio, cash flow is an excellent priority to establish when you’re putting together your investment goals. 

Always surround yourself with experts. You’ll need a good broker and a lender. You’ll need a property manager who can advise you on what the rental values are likely to be, and whether any expensive repairs will be needed before you’re able to get your vacant units ready for the rental market. 

We can serve as your property management and investment expert. When you’re ready to earn some cash flow, contact our team at Jacob Grant Property Management.