Managing your real estate cash flow from rental properties is essential; here’s what to know.
Once you purchase your rental property, your job is not over. As an investor, you have to keep working to increase your real estate cash flow.
If you want to positively manage your real estate cash flow, you are going to need to take some steps to make it happen.
Understanding Real Estate Cash Flow
When it comes to real estate, cash flow is a representation of how much money remains after all expenses have been paid. As an investor, your cash flow is representative of the profit you have once all bills and expenses are paid.
A wise investor doesn’t put the money in pockets, but rather puts it back into their investments. It could be to pay off mortgages sooner or increase cash reserves. Maybe the investor will use his or her cash flow to purchase another investment property (or properties).
Cash flow is a good indicator of just how fruitful your investments are. Those who have been investing for a while have a good idea of what will work and what won’t – and they do so by calculating cash flow projections before purchasing an investment property.
So, how do you know what to look for? How can you decide what may help you grow your real estate cash flow or what may hinder it? While it is going to be different in every situation, below you will find a general list of those things that will decrease/increase your cash flow.
Things That Decrease Your Cash Flow
When you think of those things that may wreak havoc on your level of real estate cash flow, consider the following common things that landlords/investors face.
– Unpaid Rent
Whether you didn’t thoroughly screen your tenants or you have a high-quality tenant who always pays on time, you are likely to encounter a situation in which rent doesn’t get paid. It could be paid late or it may not get paid at all.
When a tenant doesn’t pay their rent, your cash flow is greatly impacted. This means you have to cover the cost of expenses, such as mortgage payment, insurance, and taxes without the use of the rent payment. In addition, if you have to move forward with eviction costs, then you are paying out more while still not receiving payments from your tenant. This is a tough, cash-flow damaging cycle.
– Vacant Properties
As long as your rental property sits vacant, you have no money coming in and you are covering all expenses. In this situation, you have no cash flow coming in from this property. The higher your vacancy rate, the lower your real estate cash flow.
– Increase in Taxes or Insurance
It is normal for property taxes and insurance to ebb and flow, though usually these costs are increasing. As they do, you are forced to spend more — reducing your cash flow.
Things that Increase Your Real Estate Cash Flow
Just as there are decreases to your cash flow, there are also increases. Below is a list of those things that may help increase your real estate cash flow. As we know, a lot of it comes down to making wise decisions.
– High-Quality, Long-Term Tenants
We’ve established that vacant property leads to cash flow issues. So does having to constantly clean and repair between tenants. Find tenants who want to stay long-term and will continuously pay on time.
– Routine Maintenance
Waiting until something breaks can be costly. Instead, be proactive with routine maintenance so that you can protect yourself from unexpected repairs.
– Raise the Rent
Make it a practice to stick with market rents. Raise your rent when you can and in ways that make sense for the market, you, and the tenant.
– Lower Expenses
Always look for ways to lower your expenses. This includes better insurance rates, refinancing, and so forth.
Finding a Property Management Team to Help
Perhaps one of the best things you can do as an investor is to make the best decision for the care of your property. Quite often, that includes enlisting property management professionals. Not only are they experts in handling the day-to-day management of single family and multi-family properties, but they also have a wide network of resources. By hiring a property manager for your property, you can increase your cash flow and, ultimately, your ROI while greatly reducing your headaches.
How can a property management team help with real estate cash flow? Well, it all comes down to making those good decisions.
– Maintenance and Repair
A property manager is available all hours, day and night, to handle calls for repairs. They have maintenance technicians who can handle the calls in a timely manner – without outside expense. And, they have a network of service techs in the community for more complex issues – meaning you get a much better rate.
Since maintenance and repair can eat up a big chunk of your cash flow, this sounds like a great idea.
– Tenant Screening
Property managers are the experts at screening new tenants which means you end up with high quality tenants – and fewer vacancies.
– Assist in Adding Value
If you want to raise your rent, you need to add value to your properties. Finding professional, reputable vendors can be expensive. But, with a property management team on your side, you have connections to vendors to get the job done, whether it is adding a clubhouse, a dog park, or an additional bathroom.
If you invest in a property management team like Real Property Management Evolve, you are getting so much more than just a partner in caring for your property – you are getting an increase in real estate cash flow. As an investor, isn’t that the ultimate goal?