What’s the point of owning a rental property if we can’t get the most benefit from it? For all the hassle of dealing with tenants, paying property taxes, and managing the property, we sure-as-heck should be properly compensated. Fortunately, this is something that’s well within your ability to control. Unlike market factors and the futility of trying to control the stock market, with your real estate investments, you can take easy steps to improving rental property cash flow.
In this week’s post, we’ll talk about some essential strategies to maximize the cash flow from your rentals.
Improving Rental Property Cash Flow by Reducing Expenses
The first and best step to improving the cash flow from your rentals is by reducing the expenses. If you sit down and thoroughly analyze how much you spend on things like maintenance, management, marketing, and other typical rental ownership costs, you’ll begin to see opportunities to eliminate or reduce costs that are negatively affecting your bottom line as a rental investor. A good place to start is by looking at energy, water, and gas costs. Simple improvements in building insulation, weather strip and HVAC equipment over time will result in reduced and more consistent expenses.
Providing More Amenities
You might be leaving money on the table if you’re not using at least one of these strategies: laundry, vending, parking, cable/phone/internet service… the list goes on. Look for opportunities to monetize your property by offering additional value-add services that will attract tenants and provide additional convenience. You’ll not only boost revenues, you’ll also improve your property’s value according to the income appraisal approach using the prevailing cap rate (that’s the typical return demanded by investors when taking a risk on an investment). An additional benefit of implementing auxiliary revenue generation strategies is that your tenants will appreciate the extra convenience and comfort, leading to improved tenant satisfaction and less likelihood of evictions and vacancies.
Sometimes the best way to reduce long-term expenses is by spending a bit upfront to fix up the property. As you would expect, sprucing up the curb appeal will attract new renters, support rental rate increases and reduce the potential for large capital expenditure (big repairs) to creep up on you and eat up any capital reserves you might be holding. Another benefit of keeping up the property is reduced liability for injuries and health problems that can arise from deteriorating properties. Don’t let uneven sidewalks or mold take hold of your wallet.
If it’s been awhile since you’ve increased rents and market lease rates have been rising, then it’s time to follow along (it’s okay here) and give notice of an increase to tenants. To avoid alienating tenants, limit rental rate increases to around 5% per year or less. If your property is rent-controlled, rental increases may not be an option; however, you can successfully use the other methods here to reduce cost and keep your rental units full all year, increasing your profits despite the fixed rental rate situation.
Considering Exit Strategies
Rental properties are perhaps an ideal way to generate consistent long-term cash flow with relatively little economic or legal risk compared to other ventures. If you’re enjoying the cash flow, but not the management duties, please reach out to us to learn more about strategies to keep the cash flow without the property ownership and management challenges.