OPERATIONS
CASH FLOW
Finding Deals With Good Cash Flow MANY INVESTORS ARE FINDING IT CHALLENGING TO LOCATE THE DEALS THAT PROVIDE GOOD CASH FLOW.
By Kurt Coleman
Cash flow is king, and there are still real estate markets that provide it in abundance. Sometimes it simply requires entrepreneurs to look for investment opportunities in more niche markets. One industry, in particular, has consistently outperformed traditional residential real estate and has seen growth year over year, even during the pandemic. Thanks to specific demographics, economists have projected that this asset class will be in high demand for the next two decades. That asset class is senior housing. America, like many other nations, has an aging population that is outpacing its younger counterparts. People are living longer. Their golden years, when they require special living accommodations, have also increased. This longevity is due to many factors: advancements in health care, education around diet and exercise, improved living standards, etc. According to the U.S. Census Bureau, every month 120,000 people reach the age of 85, and 70% of them require assistance with their everyday tasks. This booming senior population could either present a potential crisis or an incredible opportunity, depending on the response of health
T raditional real estate investing is in a tricky spot right now. The Fed has raised interest rates by more than 4% during the past two years in an effort to slow inflation and mitigate its effects on the economy. As a result, mortgage rates have more than doubled during the last 18 months. In addition, housing prices have seen unprecedented growth in recent years. The average sales price in the U.S. has been steadily rising since 2012, skyrocketing during the pandemic. As housing prices have increased, rents have as well, but not at the same relative rate. In fact, the rent-to-price ratio has been on the decline for the past decade, resulting in reduced cash flow potential for traditional assets. These unique market conditions have made traditional real estate much less affordable for the average investor. Many have been forced to find alternative ways of building cash flow and asset appreciation in their real estate portfolios. OPPORTUNITY STILL EXISTS On the surface this may appear to be a dilemma; however, some investors see it for the opportunity it presents. No, it’s not time to dust off that résumé and find a new career, it’s time to adapt.
organizations, housing provid- ers, and investors. What is so unique about this investment strategy is that these homes can generate many times the rental income of traditional single-family rentals. As far as the demand for this type of investment is concerned, it is based on demographics, not what the markets are doing, providing both cash flow and stability. Historically, real estate has been one of the best hedges against inflation. Real estate that generates significant income performs even better, which is why so many are turning to the in-demand niche of senior housing. TIPS FOR SUCCESS No matter what real estate invest- ments you decide to pursue, here are a few general tips to help you weather current and future market conditions.
28 | think realty magazine :: july – august 2023
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