Running a rental property is like running any sort of business, and like any business, you need to focus on ensuring it is sustainable and profitable. In order to do this landlords and real estate investors will want to keep careful and accurate records of their rental property financials so that they can identify weaknesses, opportunities for growth, and the potential for increasing rental property cash flow.
Plus, with the effects of COVID-19 still playing out, in fact, according to the Federal Reserve Bank of Philadelphia, the average renter currently owes between $5,400 and $6,000 in back rent, investors need to focus now more than ever on ensuring their properties are cash flow positive.
In this article, we outline the best practices and strategies for landlords and real estate investors to maximize cash flow from assets and increase overall profitability.
Late and missed rent are the leading cause for a property to drop into the red. To get a property to become cash-flow positive again, the first step is to chase up and collect all owed rent where possible. Using a system like Landlord Studio makes this easy, you can set up automatic rent reminder emails to chase up late payments, plus tenants can use our online rent collection feature to quickly and easily transfer money directly into your bank account. Other strategies for encouraging timely rent payments include late fees and incentives.
If your tenant has not been paying because of the COVID-19 pandemic, then it is advised that you seek rent relief aid.
Upgrading and properly maintaining your rental property can help increase the value of the property and allow you to charge a higher rent price. Managed well, this is an effective way to increase cash flow. For example, converting the garage into an additional bedroom or unit would increase the number of tenants you were able to rent to. And improvements in areas like the bathroom or kitchen will make your rental more desirable. However, make sure not to overspend on these upgrades as large rehab costs may end up costing more than they benefit you.
Also, don’t forget a tenant who likes their rental and views their landlord as a caring individual may be more likely to renew their lease.
On a final note, as a landlord, you are legality obliged t ensure your property is in a habitable condition. By upgrading amenities, or investing in quality maintenance you may be dodging some potential liabilities as well as increasing your rental property cash flow.
BRRRR stands for buy, rehab, rent, refinance, repeat. This is a method of investment whereby you actively purchase property for below market value. Once bought, you fix it up, rent it out and then refinance it to cash out equity allowing you to repeat the process. By leveraging in this way you can get a property for below market value increasing your loan to value ratio, command high rents with fresh refurbishments, and rapidly scale your operations to increase your rental property cash flow.
The rehab of the property is essential and is the process by which you improve the property to the point it’s liveable and up to code. There are extra costs that you’ll have to pay during this process, so make sure you are confident handling a property refurbishment and have done all your due diligence so that you don’t get caught by surprise costs.
‘Bird-dogging’ is a term commonly used in property investment; it refers to a person (typically an agent or broker) who actively searches for properties with relevant investment potential. In exchange for a “finders fee,” which usually comes in the form of a percentage of the property’s sale. Generating cash from ‘bird-dogging’ is a good way to supplement your real estate income and grow your overall rental property cash flow. Plus, the hours spent doing so can count as professional hours working in the real estate industry and may decrease your overall tax liabilities.
This method requires you to be a member of a property investment club or network. Essentially, you’d find out what kind of specific properties your associates are looking for and scout the market or your circle to see if any homes fit the bill.
Vacancies can have a highly negative impact on cash flow from assets. Finding new tenants is costly, both financially and time-wise. You will need to go through the advertising process, tenant screenings, contract writing, property upgrades, and maintenance. All of these costs are on top of your regular property costs during a time where your property isn’t generating any income.
This is why establishing a good relationship with your tenants to reduce these vacancy periods (read How To Make The Perfect Landlord Introduction Letter and A New Landlord Introduction Letter) is essential if you want to increase your property’s overall cash flow.
To be in a cash flow positive state, you may need to invest more cash to develop areas of your business you may have not been previously addressing. From the upgrades at the property to the implementation of the BRRR method. It’s important to be aware that increased cash flow from assets is not an overnight success but something that should be a part of your long-term strategy, and will definitely pay off in the end.
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