Rental property owners often focus on cash flow, and for good reason. After all, if the money isn’t coming in, it is hard to justify keeping the property in the portfolio. At a very high level, cash flow is what’s left when you subtract the expenses from the profit. But that’s not all you need to consider when evaluating your cash flow. Here are several tips to generate more cash from your assets, and suggestions on how to use that extra income.
First, look at your expenses. This is best handled on a per-property basis, so you have a complete picture of each asset in your portfolio. Big expenses, like property management, are pretty straightforward. But the smaller expenses can quickly add up and impact your bottom line. Utility bills, lawn care, and HOA fees all add up. Look for ways to cut down on the costs by shopping other utility providers, passing those costs to the tenants, or eliminating them altogether.
Next, look at the big picture. If you are finding, for example, that a property’s appliances are constantly needing to be repaired, consider investing in new ones instead. Or find good repair people who can maximize the appliances’ longevity.
Finally, do not overlook the importance of good tenants. Cash flow stops immediately when tenants stop paying their rent. Price your properties according to the local market and do your due diligence in screening applicants. If you utilize a property management group, they can help with this. Once you have good tenants in place, try to keep them there. Avoid the temptation to try to squeeze a little more money out of them each month, as this could drive them to seek out a better option.
Now that you have streamlined your expenses and you see more money coming in each month, look for ways to keep that money working for you. While some are tempted to pocket the extra money and move on, this is not the best strategy. Rather, keep those funds in the business. Reinvest in your long term goals. That money could go a long way toward paying down your loan faster, as an extra several hundred dollars toward the principal each month can shave off years of payments. This builds equity faster and saves you from paying that extra interest.
You can also use that extra income to pay down debt. If you are carrying credit card debt, you are risking your credit score and wasting money on paying interest each month. By putting that income to work reducing your overhead, you will strengthen your business and put yourself in a better position to acquire more properties.
Finally, consider saving the extra cash to put toward your next deal. Having extra cash on hand is always helpful in acquiring properties to lease. It can also go toward wholesale deals if those are part of your business strategy.
When it comes to cash flow, what you do with it is more important than how much you have to work with. If you can find ways to increase your cash flow and make good decisions on what to do with it, your business will be stronger for it.