If you invested in rental properties for the income it can generate right now or if you need the income from your rental to pay the expenses for the property, cash flow is extremely important. Without that money coming in, you’re paying out of pocket for repairs, the mortgage, and other expenses.
One unexpected expense or a too-long vacancy can kill your cash flow and blow a hole in your budget and projected earnings for the year.
Why Cash Flow Matters
Other than the obvious reasons, cash flow matters for a few reasons. It all depends on what you want to do in the future. If you bought a property thinking it would make you money, you might see a lack of money coming in as a waste of your investment - and it may be. But when you’re ready to sell, or even refinance, your cash flow will matter a great deal.
A bank wants to see consistent cash flow on an investment property before they approve a refinance or a sale to a new buyer. Prospective investors will want to see proof of consistent cash flow in order to decide if they should buy the property from you. Without that you might sit on a rental property far longer than you really want to.
How to Stabilize or Increase Your Cash Flow
Ideally, your cash flow will increase with a property incrementally over time. Sometimes, though, when you’ve had a dip in received income, it’s more important to stabilize things so you can plan for the future. To get your cash flow moving in the right direction again, there are a few things you need to do.
Prepare for vacancies. Vacancies will definitely happen so the first step is to budget accordingly. When projecting your cash flow, it’s far better to assume you’ll have a long-term vacancy at some point and plan for it than believe it won’t happen at all.
Reduce the risk of vacancies. Take of the property so that it’s safe and livable. Communicate with your tenants and get back to them promptly. Give good tenants a reason to stay, even if the rent goes up a bit, and you’ll reduce the amount of vacancies you have. Properly maintaining the property and upgrading it as needed will also help you have shorter vacancies when tenants move out.
Stagger your lease expiration dates. It might keep you organized to have all your lease renewals happen at one time, but it can kill your budget if multiple families move out at once. Stagger them over the course of a few months. This way, if a family moves out, you still have income from other properties and time to fill the vacancy before the next lease renewal is up.
Take care of your property. Inspect each rental at least once a year. Make note of big ticket repairs and upgrades so you can budget for them. Fix small things immediately before they become expensive problems. Not only does this help you budget and save on repairs, it also keeps the property in good condition which keeps tenants happy.
Raise the rent incrementally. Your property needs to keep up with changing values but if you raise the rent too much all at once, you could lose a great tenant. Even worse, if you price yourself too high for your market, you might sit on a vacancy longer than expected. Raising rents is a fact of life but factor in the importance of keeping a good tenant and getting it rented out quickly.
Managing your cash flow is a big job, and if not handled well can break the bank. Knowing how to minimize vacancies and major repairs can make a big difference. If you need help keeping up with your cash flow, raising rents, taking care of your rentals, and any of the other thousand tasks you do as a landlord, work with a property management company that knows how important your cash flow is.
Here at ERA American Real Estate, we work hard to keep good tenants in properties, cash coming in, and properties well maintained. Call us today and find out how we can help you!