When you’re thinking about buying an investment property, one of the most important factors is a positive cash flow.
Cash flow is becoming a key issue for many investors particularly in the current environment where interest rates are rising. Sometimes investors buy rental properties and settle for a negative cash flow, hoping the property will appreciate quickly. This isn’t always the smartest choice.
What is cash flow, exactly? Cash flow is the revenue generated by your investment property after expenses. When you calculate expenses, you need to include more than just your mortgage payment, insurance, and property taxes. Repairs, maintenance, HOA fees, vacancies, and any other costs you may have to include.
So, how do you calculate cash flow on your investment property? It’s pretty easy once you figure out what your expenses are.
All you have to do is subtract your costs from the total rent payments you receive each month. Ideally, the figure you come up with is a positive number. If it’s negative or not as high as you’d like it to be, there are some steps you can take to help it grow. There are several strategies you can pursue, however, let’s check out five major ways to increase the cash flow on your investment property below.
1. ASK FOR MORE RENT!
It seems simple, but do some research and see what similar properties are renting for in your area. Compare both the inside and outside of the units to make sure you’re renting at a fair price. If you’re charging below market value, increasing rent is an effective way to boost your cash flow. This can be easily overlooked by many property investors.
2. IMPROVEMENTS ARE YOUR FRIEND
Many landlords balk at the idea of improving their rental properties. However, increasing the value of your building means you can increase your rental price as much as a couple hundred dollars per month, thereby enhancing your cash flow. You’re making the property more appealing. Instead of spending lots of money guessing, you can produce maximum rent with minimum outlay of cash by asking tenants what improvements they may want.
3. LOCK IN A TWO OR THREE YEAR LEASE
Aside from vacancies, tenant turnover can be one of the biggest drains on cash flow. When a tenant moves out you have to clean and paint to get the property ready for new renters. Finding tenants who are looking to stay long-term will reduce the frequency of these costs.
4. REPAIR FOR VALUE, NOT PRICE
When something needs to be repaired, cheap is seldom better. Putting a Band-Aid on a problem rather than spending the money to fix it permanently will come back to haunt you. Repairing for value will save you money in the long term. And it could keep your tenants around longer, too!
5. PROVIDE A RENT-TO-OWN OPTION.
Usually there’s a non-refundable deposit, and higher than market rents in these deals. When renters change their minds, as they often do, you got the deposit and better cash flow. This is great when poor cash flow makes you want to sell. You either sell or get the better cash flow as you repeat the process.
If all else fails, and you find yourself in a negative cash flow rental investment, it may be time to sell. While some may wonder why they would want to sell their property to a wholesaler, or investor, like BroCAR Properties, usually at discount, there are actually many individuals and companies that this type of transaction can benefit. Investors buying properties with cash can move extremely fast to close on properties, and don’t have a problem acquiring distressed properties.
There are many reasons you may consider selling which may include:
Those behind on mortgage payments or property taxes
Owners that have been prevented from selling through other channels
Those in charge of estate sales
Lenders that have taken on property in foreclosure
Sellers in divorce situations
Anyone that needs a speedy sale
Sellers wishing to save on the cost of marketing or fixing up their homes
Get in contact with BroCAR Properties if you are looking to unload negative cash flow investment properties. We can purchase quickly and close fast!