When it comes to owning a rental property, one key factor that will determine your success is cash flow. Basically, cash flow is the money you are left with after deducting all operating rental property expenses from your rental income. If you have sufficient and consistent positive cash flow, you will be able to cover contingencies, create financial freedom, and grow your real estate portfolio.
Having a negative cash flow rental property means that you will use money from your pocket to offset some expenses. This can be a scary scenario since your rental property risks being foreclosed upon if you are unable to make your mortgage payments. One important lesson that real estate investors learn, sometimes painfully, is that cash flow is king.
If you are experiencing a lack of cash flow, you may already be asking yourself questions like, ‘Should I walk away?’ or ‘How do I fix my cash flow?’ Well, there are several ways you can deal with your rental property cash flow problem.
If you are not happy with your cash flow statement, here are some strategies to consider:
10 Ways to Solve Rental Property Cash Flow Problems
1. Increase the Rental Rate
If you are struggling with rental property cash flow problems, one way you could increase your income is by raising the rental rate on your rental property. This can be easier if your renters are currently paying below-market rents. You can also increase the rent after increasing the value of your investment property through simple updates and renovations.
However, if your area has rent control regulations, this might not be possible. Also, keep in mind that a large increase in the rental rate can cause tenants to move out. To avoid this, read: Raising Rent Without Losing Tenants: 6 Tips for New Landlords.
2. Rent Parking Space and Garages Separately
Increasing rent is not always a feasible option when it comes to solving rental property cash flow problems. However, landlords can get extra income by charging for add-ons like storage, garages, and parking spaces. If you have a garage or parking space that you simply give to renters for free, now may be the time to reconsider to help solve your cash flow issues.
3. Screen Your Tenants Thoroughly
Another cause of rental property cash flow problems is the cost of tenant evictions. Evictions may be due to the tenant not paying rent, property damage, or other tenant issues. The best way to prevent tenant evictions is by putting all new tenants through an extensive screening process. Make sure you review their credit report, criminal background, and eviction history.
4. Keep Your Tenants Happy
A high vacancy rate can also lead to rental property cash flow problems. Avoid vacancies by making the property desirable to renters and providing excellent customer service. Also, make sure your tenants get a timely response to their maintenance requests and complaints. If tenants are happy, they are likely to stay for longer. Therefore, you will avoid tenant turnover costs.
You can also deal with vacancies by being flexible in your rent. It’s better for the rental income to be less than what you expect than for the rental property to be vacant for long periods. Just be sure you’re still earning positive cash flow.
5. Consider Managing the Rental Property Yourself
If you have only one or two rental properties, you don’t have to hire a property manager. With proper planning, a good understanding of management tasks, and good systems in place, you could save a lot of money.
If you have to hire a property manager, make sure they are competent, have a good track record, and are within your budget. The quality of your property manager will affect your maintenance costs and the satisfaction of your renters. A good property manager can increase your real estate cash flow despite property management fees.
6. Do Regular Preventative Maintenance Checks
Huge repair and maintenance costs can cause rental property cash flow problems. To prevent larger expenses in the future, you need to be proactive and check if there are any repair or maintenance needs before they escalate. Make sure you inspect your rental properties regularly to ensure that tenants are keeping them in good condition.
7. Trim Your Monthly Budget
To have a positive cash flow rental property, you need to lower your monthly operating expenses. Here are some ways to reduce your monthly budget and solve your rental property cash flow problems:
- Switch service providers to those with lower rates
- Renegotiate contracts with service providers you don’t want to switch
- Install modern energy-efficient appliances
- Install solar panels
8. Have Tenants Pay for Their Utilities
Including the cost of utilities like electricity, water, and heat in the rent may cost you more unless you inflate the rent. Tenants tend to be less concerned about conservation if they are not the ones paying for the utilities. This often leads to higher bills. By passing these expenses to tenants, you won’t have to worry about the high cost of utilities.
9. Refinance Your Mortgage
Debt service is one of the biggest cash flow killers. Therefore, refinancing is one of the strategies you should consider when thinking of how to increase cash flow. If investment property mortgage interest rates are low, it might be a good time to refinance your rental property. This will extend your repayment term and lower the monthly payments. This way, you will free up cash and reduce your rental property cash flow problem.
10. Use Mashvisor
When it comes to cash flow investing, prevention is always better than cure. The best way to avoid cash flow problems is to buy a positive cash flow rental property. If you are a first-time real estate investor or want to purchase another rental property, be sure to look for positive cash flow investments.
Mashvisor’s investment property cash flow calculator is the best tool for doing your cash flow analysis. The tool uses accurate predictive analytics and can help you find the best cash flow rental property in any area across the US housing market. You can adjust rental expenses and it will provide you with an accurate cash flow analysis with the click of a button. By using our cash flow calculator, you will ensure that you only invest in cash flow properties.
To start looking for and analyzing the best investment properties in your city and neighborhood of choice, click here.
The Bottom Line
Learning how to solve cash flow problems can help you avoid the problems that come with owning a negative cash flow investment property. Generally, it involves increasing rental income and lowering rental expenses. By implementing the strategies in this blog that work for you, you will be able to improve your rental property cash flow business.