The main purpose for investors to invest in real estate is the cash flow. Well, to be more precise: the positive cash flow. But what do you do if you have a negative cash flow investment property?
To have a better sense of what a negative cash flow property means, here is an example. Let us say that you are renting your property out to tenants for $1,000 a month, but you pay $1,200 in expenses for it. Well, that is exactly what we call a negative cash flow investment property. In short, it’s when the amount of money you pay for expenses on the rental property exceeds the amount you are making out of it.
Related: How to Deal With Negative Cash Flow Properties?
The real estate business is very diverse, and as a result, there are many situations that you are expected to face. However, wherever there is a problem, the solution is also right there. You just have to look around, and you will find it. The good news is that you can fix the situation of a negative cash flow investment property in many different ways. First, here is what you need to do before even thinking of fixing the situation:
Evaluate your negative cash flow investment property situation
When we say evaluate the situation, we mean that you should get a better understanding of it. Look at it and try to figure out what went wrong. Find the causes and work on solving them. Find out whether the problem lies within the investment property itself or you did something that caused it to produce negative cash flow.
Keep in mind that the cause might not be major, and it could be easy to fix. For instance, you might be asking for too much rent which leads to high vacancies. In this case, you can easily fix the negative cash flow investment property by lowering the rent. So, finding out what went wrong is the first step towards solving the negative cash flow situation.
Now, here are some actual tips on turning your negative cash flow investment property into a positive one:
Change your rental strategy
It is possible that the cause of a negative cash flow property is using the wrong rental strategy. For instance, if you have a property that is located by an airport and you are using a long-term rental strategy, that might be the very reason for a negative cash flow. In this case, you might want to consider switching your investment strategy. You can use a short-term rental strategy instead. Try to list your property on Airbnb, for instance.
When investing in real estate properties, you have to consider many factors, such as location and amenities among many others. These factors can determine whether you should go with a certain rental strategy or another. Believe us, a rental strategy plays a major role in determining the cash flow of your investment property.
Related: Real Estate Investing 101: Long-Term vs. Short-Term Rentals
Rent to own
Another way to go about fixing the situation of your negative cash flow investment property is rent to own, especially if you are having a vacancy problem. You can find someone who would be interested in renting the property and eventually buying it.
This is how rent to own works: you find a tenant who will rent your property and pay a monthly rent in addition to a sum of money agreed upon between the two of you. That money will be credited to you as the landlord. Eventually, the tenant will end up owning the property.
Change the financing system
If you are financing your investment property with a mortgage, the problem might be high monthly payments. So, what you have got to do is change that. Go to the bank and ask to lower the payments for you, therefore lengthening the loan term. This can fix part of the problem with the negative cash flow investment property.
Another thing to consider is reducing the property’s expenses. You might be spending too much on managing your rental property. So, reducing the expenses will also help fix your cash flow problem.
Make use of additional space
You might have an investment property with a separate basement. Why not convert it to a living space and rent it out separately? This could be another solution for you. You will be able to raise your cash flow, which will cover the expenses on the rental property. You might even convert any other room that isn’t used much. Another option is the garage. You can transform that and use it for additional rental income.
Charge for amenities
You can also make use of the amenities you have. You can either charge your tenants some extra money for them or even rent them out to non-tenants. In this way you can significantly increase your cash flow and gradually turn your rental property into a positive cash flow investment property.
Find a real estate partner
A real estate partnership is another solution to the problem of a negative cash flow investment property. Find someone who is capable of financing the investment property but does not have the real estate knowledge required. Your real estate partner will finance the rental property, while you take care of the property management. Keep in mind that the problem might be that you do not have the money to do maintenance which drives tenants away. Partnering with someone will provide you with the finances to do so and therefore keeping your tenants.
Related: What You Need to Know About Real Estate Partnerships
Sell the negative cash flow investment property
Though it sounds like an extreme soluation, still it is an option. However, you should only do that if you feel that there is a major problem with your cash flow investment property that is causing a negative cash flow. After considering all of the causes and possible solutions you have on hand, and you feel they are useless, selling the negative cash flow investment property might be the best option. Keep in mind to find a realtor specialized in the type of properties you have.
In conclusion
There are many solutions to whatever problem you might face in the real estate investing business. You have to have the proper knowledge in order to be able to find the problem and fix it, regardless of whether a major or a minor one. Only after you have evaluated your situation, you can proceed with finding the best solution to it. So, be wise with your real estate investment decisions. To get the required real estate investing knowledge in due course, keep reading on Mashvisor.