When it comes to rental property investing, positive cash flow is key to your success. Cash flow investing means that your total cash income can cover your rental property expenses and generate some profit. This means that it will not cost you money from your pocket to hold the investment property. Moreover, the more your real estate cash flow is, the more income you will have to reinvest or fund your retirement.
With a negative cash flow property, however, you will need to spend money from your own pocket to keep the rental property running. This means that you risk having to sell the property in case something happens to your current income.
Building a portfolio of positive cash flow rental properties is actually one of the best ways to attain financial freedom. But how do you make your investment property cash flow positive if it is not? Well, in broad terms, you can do so by decreasing rental property expenses, increasing rental income, or both.
In this article, we are basically going to discuss how a real estate investor can increase the income of their rental property and decrease rental property expenses.
6 Ways to Create Positive Cash Flow with Rental Property
1. Increase the Rental Rate
The most obvious way to create positive cash flow is to increase rent. If you haven’t increased the rental rate in a long time, it might be lower than market rates.
Sometimes a landlord may not even know that he/she has under-priced the rental property and is losing money that could have increased monthly real estate cash flow. If this describes you, you should consider reviewing your rent.
To set the right rent price, make sure you research the real estate market so that you know what other comparable rental properties in the neighborhood (rental comps) are charging. A very large rent increase can force renters to move out or become unhappy and even damage your rental property. It’s also important that you check the local rent control policies so that you don’t break the law.
Related: Raising Rent Without Losing Tenants: 6 Tips for New Landlords
A great way to rent out your property for more is to increase the property’s value through renovations. Focus on inexpensive upgrades that make the house more desirable to tenants. Although not always possible, you can also consider furnishing the unit fully and then charging more rent.
2. Create Additional Sources of Income
Even if creating positive cash flow by increasing the rent is not viable, you can still boost your rental income in other ways. With some creativity, you can create new sources of income by providing additional services and charging for them separately.
These are usually services that other landlords in the neighborhood are not offering. They may include services like cleaning, laundry, vending machines, a games room, storage space, and parking space. If you have extra space, you can add a new stream of rental income by building a detached garage and renting it out to your tenants.
Another extra income idea is to allow pets but charge an extra fee for those who want to keep them. However, this may not work if your rental property is in an apartment building or condo complex where pets aren’t allowed.
3. Manage the Rental Property Yourself
If you are thinking of how to create positive cash flow by reducing rental property expenses, one feasible way is to manage the rental property on your own. This is easier if you own a few rental properties and have the time. You will also need to build your property management skills if you don’t have them already.
With your rental properties now cash flow positive, you can continue managing them on your own until your real estate investment portfolio is bigger and bringing in enough returns to cover property management fees. At this point, it would make sense to hire professional property management since the workload will also have increased.
Related: The Best Real Estate Investing Tips for Cutting Down on Your Expenses
4. Refinance Your Mortgage
The biggest expense for a landlord is usually their debt service. You can, however, reduce your monthly mortgage payments and increase rental property cash flow by refinancing your loan. Speak to your lender about extending the amortization over a longer period and negotiate a better interest rate.
Related: Is It Worth It to Refinance Rental Property?
5. Let Tenants Pay for Utilities
Another way to cut operating expenses is to have tenants pay for utilities like electricity, heating, water, and sewer. The fact is that tenants are usually less conservative if you are the one paying for utilities. This can significantly increase the cost of the utilities, which eats into your monthly rental income. To avoid this risk, consider passing this responsibility to tenants.
6. Try a Different Rental Strategy
Sometimes the reason why your rental property is not producing positive cash flow is due to the rental strategy. If you have tried most of the above strategies to increase real estate cash flow to no avail, you should probably consider changing your rental strategy.
Depending on the location, one rental strategy (Airbnb or traditional) can be more lucrative than the other. For instance, if your rental property is in a tourist destination but you have been renting it out on a long-term basis, you could generate more rental income by turning it into a vacation home. With the high demand from tourists, the investment property will have a high Airbnb occupancy rate. Consequently, your total rental income will increase and possibly bring about positive cash flow.
If your property is in the US housing market, you can easily know the optimal rental strategy using Mashvisor’s investment property cash flow calculator. You can add your rental property to Mashvisor’s database and the calculator will provide you with the available data on the expected cash flow for both rental strategies.
The Bottom Line
Most beginner real estate investors don’t realize the importance of cash flow investments or how to create positive cash flow. Cash flow investing is a good strategy because it is self-sustaining, scalable, and can help you achieve your goals faster. Using a combination of some of these strategies, you can easily create positive cash flow with your investment property.
With that said, the best way to avoid cash flow problems is usually to purchase positive cash flow properties from the start. However, finding positive cash flow properties can be a time-consuming and tedious process if you are analyzing multiple properties manually. This is where Mashvisor comes in. Our cash flow calculator uses predictive analytics and can help you to find and analyze the best cash flow investments in the US housing market in a matter of minutes. Start out your 7-day free trial with Mashvisor now.