16 Ways To Create Cash Flow In Real Estate

Stacks Of Coins - Cash FlowEveryone needs cash to live on a monthly basis and many people look to real estate investing to provide that cash flow and build long-term wealth.

However, I see a lot of new investors buy the wrong properties and set things up the wrong way in their investing business.

As a result, they struggle to make the monthly cash flow they need to supplement their income or even quit their jobs.

To help solve that problem, I’ve put together a list of 16 different ways to create cash flow investing in real estate.  You don’t need to do them all – just a few can provide the extra money you need to pay your bills.

 

1) Buy positive cash flow rentals

This seems obvious, but you’d be surprised how many people buy negative cash flow properties (or even ‘break even’, which quickly becomes negative).  There are 4 important steps to follow to create positive cash flow:

i) Buy at a discount

Always buy rental property at a price that provides a positive cash flow.  In most Canadian markets today, prices are very high and they keep climbing…

So that means you usually need to buy at a discount.  Otherwise, you’ll need to put more down payment to get the same resulting cash flow.

Read the following articles for ideas on how to buy at a discount:

 

ii) Perform a Full Cash Flow Analysis

It’s critically important that you understand exactly how to analyze a rental property to ensure it’s profitable from day 1.

If you’re new to analyzing rental properties for cash flow, do NOT try to learn how to do it yourself (even if you’re a math wizard).

You WILL make costly mistakes, which you can avoid by getting some inexpensive training:

CLICK HERE to learn how to identify
positive cash flow rental properties

 

iii) Ensure Proper Property Management

Once you’ve purchased the property, you need to manage your property closely to ensure it keeps producing positive cash flow. Read the following article for extra tips on how to do that:

 

iv) Find More Ways To Add Value

Most real estate investors simply buy rental property and rent it out to tenants. But the savvy ones look for extra ways to create more cash flow from the same property, at little to no cost.

For example:

  • You can rent out parking spots to tenants
  • Garages can be rented out to someone in the neighbourhood
  • Signage can be leased if the property is near a high traffic area, etc

Read the following article for more creative ideas on how to add value

 

When you buy and manage rental property correctly, you can collect the rent every month, pay the bills, and keep the extra cash in your pocket.

 

2) Flip properties

Woman renovatingAnother method is to buy property at a low/discounted price, renovate it (optional), and sell it at a higher price, usually within a short time period.

Because flips are so labour and time intensive (even if hiring a contractor), plan for only 1-2 of these per year while you’re building the rest of your real estate business.

All the TV shows make property flipping look super easy, but don’t fall for it!  They usually ‘forget’ to include:

  • Holding costs
  • Sale costs
  • Time required to close with a new buyer, and
  • Even the cost of labour (which can be 50%-70% of your total costs to renovate)

Remember…

You MUST buy the property below market value
AND deduct the cost of repairs

Too many people try to flip a property, their costs skyrocket, holding costs are more than they planned for, and then they realize they don’t have enough buffer to create a profit.

The end result is they lose money. Don’t let it happen to you…

CLICK HERE to learn how to identify
profitable properties to flip

 

3) Charge a finder’s fee on JV deals

If you’re raising Joint Venture capital for your deals, the quickest and easiest way to generate extra cash for yourself is to charge a finder’s fee of 1%-2% or more of the value of the deal.

For example, if you’ve found a rental property valued at $500,000, charging 2% to the JV partner could give you an extra $10,000.

If you think this isn’t normal, think again…

On larger projects, such as apartment buildings, it’s quite common to see all kinds of extra fees charged to the investors.  You can apply the same techniques on a smaller scale and give yourself the extra cash flow you need.

 

4) Offer a mortgage

If you’re trying to sell a property, perhaps a flip, rental property, or even your home, one way to get top dollar is to offer vendor financing.

Instead of taking all your profits as cash, you leave some in the property and loan it to the buyer in the form of a mortgage.

The buyer must send you monthly payments (just like with a regular bank mortgage) and this provides you a steady monthly cash flow into your bank account.

Sometimes this can make the difference between having cash in your pocket from selling the property, and not selling the property at all, or…

Sometimes this can help you get top dollar for a property, where you receive most of your money in cash, but the ‘top dollar’ portion is received as monthly mortgage payments.

Read the following article for ideas on how to offer vendor financing

 

5) Become a mortgage agent

Man with Mortgage contractIf you’re raising money for your own real estate deals, chances are you’re already talking to a lot of private lenders.

Often times you’ll have more lenders than real estate deals.

If you want to connect private lenders with other real estate investors (or homeowners who need mortgage financing) and get paid to do it, you must be licensed in your province.

This can provide a nice extra source of cash flow while you’re investing in your own deals.

CLICK HERE for information about becoming
licensed as a mortgage agent

 

6) Find deals for investors (aka Bird-Dogging)

If you’re part of a real estate club, or you network with various real estate investors, ask them…

  • What they’re looking for in an investment property, and
  • If they’d be willing to pay you a finder’s fee for the property address and (optionally) the owner’s phone number.

You simply drive neighbourhoods or look through real estate listing looking for deals, and when you find one, you send it to them.

No offers are made to the property owner, you are never representing the investor, and you never have to close on the deal.  You’re basically offering a research service and getting paid for it.

While it doesn’t pay a lot, it’s a great way for new investors to get experience looking for deals and earn some money at the same time.

 

7) Assigning deals to investors

Once you’ve got some experience making offers on real estate, you can not only find deals for other investors, but you can lock up the property under contract with terms (ie. price, financing) that will be attractive to other investors.

This is very similar to bird-dogging, except you’re adding more value by actually negotiating the deal and getting the seller to agree to a price and terms.

You can then assign or transfer the contract to an investor for a fee, which can be $2,000-$10,000 or more.

Just make sure it’s still a great deal for the investor, even with the assignment fee factored into the analysis.

CLICK HERE for information about
assigning deals and much more

 

8) Become a licensed realtor

If you want to get paid for helping investors or homeowners buy and sell real estate, consider getting licensed as a mortgage agent in your province.

You’re already out there looking at deals, talking to realtors and investors, so you can create extra cash flow at the same time.

You can get full access to your local real estate board’s MLS system, and you can even find out about the best deals before other investors do.

Click Here for information about becoming
licensed as a realtor in Ontario
 

(Ontario Real Estate Association)

Click Here to find information about other provinces
(Canadian Real Estate Association)

 

9) Sever land lots / Convert 1 property into 2

If you buy a property with a large attached lot, sometimes you can apply to your local town or city to sever the lot and sell it separately.

This can provide a large chunk of cash, which you can use to improve the property you have left or buy another property.

Read the following article for an example

Also, sometimes you can find properties such as side-by-side duplexes that can easily be severed with the city.

Once you file the paperwork and the property is severed, you can then sell one of the properties, receive a large chunk of cash, and keep one property in your portfolio.

 

10) Rezone the land

Changing the permitted use of land is called rezoning and if a property is rezoned to something higher, better and more valuable, it can be extremely profitable.

For example: if you own a rental property that is zoned as residential, but it’s very close to a commercially zoned area, you could apply to have the zoning changed to commercial and drastically improve its value.

Another example: if you own land lots zoned for farmland, you could apply to have them rezoned as residential, sever the lots and make a fortune.

Each municipality has different rules and regulations regarding zoning, so it’s best to check with your local town or city to determine what zoning is available and what each one allows.

In some cities, bureaucracy can slow this process to a crawl (it could take years), so keep that in mind before starting down this path.  Be sure to have other income streams coming in that can provide the cash flow you need.

 

11) Take advantage of highest and best use

The concept of ‘highest and best use’ means you should always try to use a property for its most profitable purpose, and often that involves rezoning.

However, sometimes you’ll buy a property that is just flat out not being used to its full potential. If you can take advantage of that highest and best use, you can quickly make a lot of money with little effort.

For example, you may buy a triplex that is zoned commercial, but the building layout is designed mainly as residential and it’s currently being rented out to residential tenants.

After some quick research, you discover there are many small businesses leasing commercial space in the area, at rents that are much higher than what you could get with residential tenants.

By making some minor changes to accommodate commercial tenants, and setting up commercial leases, you can quickly and easily increase the cash flow of the property… without rezoning.

 

12) Develop land

machine vehicle clearing landThe next step up from severing land lots and rezoning is to fully develop the new lots you’ve created.

Obviously, this requires much more effort and expertise, but this is where huge amounts of money can be made if done correctly.

You can buy raw land, sever the lot into smaller ones, service each of them with water and electricity, and then sell off the vacant lots to builders or hire someone to build homes on them for later resale.

Basically, the more you do, the more valuable the properties become.

Keep in mind that if you find a deal that would work for land development, but you don’t have the expertise, you could try to create a joint venture with a smaller developer who does have the expertise.

They bring their knowledge and skills of development, and you bring the deal to the table.

Just be careful of bigger developers who may try to take advantage of your inexperience – read this article for more details

 

13) Charge property management fees

If you own rental properties and you’re good at property management, consider offering property management services to other investors.

You’re already managing your own properties, and chances are there will be other rental properties in the same neighbourhood. Why not get paid to do something you’re already doing nearby?

Many investors don’t have time to manage their own properties and they must hire a property management company.  That property management company can be yours.

You can charge a monthly fee to manage their units for them, as well as leasing fees for finding tenants for vacant units.

Just be careful about managing too many units too quickly, as I’ve seen a few property management companies go out of business because they grew too fast.

Read the following article for more details

 

14) Charge project management fees

Similar to property management, chances are you’re already managing renovations for your rental properties or flips.

Many investors have full-time jobs and they don’t realize how much on-site time it takes to manage a renovation project.  They don’t have the time to manage it themselves, and they need help.

You can offer your services as a ‘project manager’ for renovation jobs and get paid to do it.  Basically, you’re coordinating the trades, dealing with city permits, making sure the job site is cleaned up – almost like a general contractor.

You can charge a flat fee for the project, or markup the entire job by a percentage that makes sense for your time involved.

Property Managers often do this for their clients, but you don’t have to be a property manager to offer this service and make money from it.

 

15) Charge consulting fees

After you’ve got some experience in real estate, you can offer your knowledge and experience to other new investors in the form of consulting.

Your experience is worth money, and you can charge a fee for helping other investors with their deals by analyzing the property financials, helping with negotiation, or determining a scope of work for a renovation project.

Not every new investor will hire you, but the smart ones will because they know that instead of wasting time trying to learn everything themselves (and making expensive mistakes), they can quickly shortcut the process and get the answer or result they need.

 

16) Apply for government funding

Money various billsEach year, federal, provincial and municipal governments hand out hundreds of millions of dollars in free grant money for a variety of uses, including real estate.

There is money available for:

  • Down payments on houses and multi-family buildings
  • For closing costs
  • To renovate and upgrade existing properties
  • To help your tenants pay you
  • To pay your mortgages
  • Plus many other programs

Unfortunately, governments are not very good at informing you and the general the public about their grant and loan programs (and some are not even advertised at all), so you need to do a lot of research to find them.

But once you find a good program, it’s some of the easiest money you can find and it can make a huge difference to your bank account.

 

 

What about the long-term market appreciation from investing in rental properties? Doesn’t that count as generating cash?

Sure it does… IF you sell the property or refinance.

But generally, the gains from holding rental properties for the long term don’t generate monthly cash in your pocket.  And everyone knows it’s cash in your pocket that pays the bills!

Once you’ve mastered a few techniques, you’ll be on your way to generating enough cash to nicely supplement your income.  You might even earn enough to leave your full-time job and invest in real estate full time.

 

What are your favourite ways to create extra
cash flow in real estate?  
Leave a comment below

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Paul Blacquiere

Paul is an entrepreneur, investor, speaker, and educator.
He's experienced in multi-family properties, renovation, flips,
joint ventures, and is Canada's top RRSP mortgage expert.
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