Increasing cash flow on rental property is one of the main priorities of every investor.
As an investor with a portfolio of rental properties, you are going to want to take steps to maximize your cash flow at some point. After all, you need to make sure you have sufficient money to cover any expenses – and generate a sustainable income for you. Otherwise, you may find yourself having to pull funds out of your own pocket, or from the income of another property, to handle things like maintenance, repairs, and upgrades – and that’s just not a healthy investment.
At the end of the day, all investors need to understand how to increase cash flow on a rental property?
Before we move on, it is important that you understand some cash flow basics.
Cash flow is the money left over after you deduct all of your expenses from the income you obtain. In other words, when you receive a rental payment, you will subtract the mortgage payment on the property, insurance, HOA fees, maintenance, repairs, etc. The money that remains is your cash flow.
It goes without saying that you want your cash flow to be a positive number – and the bigger the better. To increase your cash flow, then, you have to either increase your income or reduce your expenses. Let’s look at some ideas to successfully increase cash flow on rental property.
Raising the rent seems like a logical choice since the more money you charge, the more you make, right? You’ve got to be careful here. Raising your rent too high for the local market can actually leave you in a worse position – with a vacancy. And some income is better than none at all!
Keep your rent comparable to other similar rentals in the area. Consider adding upgrades or value to the property that will allow you to charge at the higher end of the market rents.
When you rent out a furnished home or apartment, you can usually charge a higher rent – potentially even a couple of hundred dollars more. This isn’t always going to be a selling point for new tenants as some will have their own belongings. However, if your property is located in an area that has a lot of transient renters – such as those moving for work or school – you may find it beneficial to your cash flow to furnish the place.
Property managers know how to best manage properties. They have a network of vendors in the community and have their own maintenance and repair team to keep rentals in healthy shape. Property management companies will handle everything, including finding high-quality tenants. They have processes in place to market properties, screen tenants, lease preparation and signing, handle walk-throughs, routine maintenance, emergency repairs, rent collection, accounting reports, and so much more.
Companies like Real Property Management Evolve handle your rental properties in such an efficient manner that it actually saves you money – and thus increases your cash flow on rental property – even though you have the additional expense of paying for the management.
Snowballing is an investment strategy that involves paying off all the debts of your rental properties. And it is done by pooling all of your money and focusing on one property at a time. Once its debts are paid, you move on to the next property. Eventually, all your debts will be paid. As they are, you will see your cash flow increase as it becomes income and is no longer needed for paying expenses owed on a property.
Not every investor is capable of investing in property using cash only. For even the smallest rental, that can mean coming up with a huge chunk of change. But if you do have access to funds that will allow you to make a cash purchase – and avoid taking out a mortgage on the property – you will immediately find yourself in a much better position when it comes to cash flow. Not to mention you’d have a high amount of equity in your home.
You don’t always have to go for the Class A property. In fact, you may find yourself with higher cash flow if you look for Class C or D properties. These properties are typically less desirable, whether it be because they are older or need a lot of repairs, but can prove to be beneficial for you once you clean them up.
Sometimes up-and-coming neighborhoods or even a house that was left uncared for can be spruced up with a little TLC. And you will be able to charge market rent for the property. Since you got a deal on it when you purchased it, though, that means you will be left with a great level of cash flow.
If you have a multi-family property, this usually means residents are expected to park in a large, uncovered parking lot. By building an area of covered parking – and marketing it as preferred parking – you are able to charge additional for each spot. This monthly fee is added to the rent and is paid monthly. Just covering ten spots and charging residents $50.00 per month to rent one can bring in an additional $500 every month. You may be surprised at just how many people will take advantage of such an offering.
Covered parking is just one of many amenities you may add that could bring additional income – primarily for multifamily properties. For instance, consider coin laundry so that residents can do their laundry on-site while you collect the change. Or, if possible, add a fitness area and charge a small monthly fee for usage. You get the idea.
Finding ways to increase cash flow on your rental property isn’t tough, it just takes a few ideas and some action. Whether you want to review the way you initially invest or how you can bank on what you already have going forward, calculate your current cash flow on rental property and see what works best for you.
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