Posted by Luke Babich | Dec 30, 2021 | Education, Investor Tips, Landlord Tips, Property Management Tips | 0
Buying a rental property can be a solid real estate investment. And to help build your wealth over time, it is important to maintain a positive cash flow that maximizes your earning potential.
That may sound simple enough. You start by purchasing a property that is well within your budget, you charge enough rent to cover monthly expenses, and you pocket the difference. But investments are not always as straightforward as they may seem.
Circ*mstances can change quickly. If you’ve found your cash flow falling or breaking even because of unexpected vacancies, market changes, or other reasons, don’t lose hope. By making some adjustments, you can move your cash flow from the red to the black.
Here are six ways you can increase cash flow from your rental properties.
ADD NEW AMENITIES
As you research your local rental market, find out what amenities will bring you the best long-term returns. Installing a washer and dryer or a dishwasher may cost some money upfront, but most renters are willing to pay more every month for these conveniences.
If you need help deciding which amenities matter most to renters in your area, it might be time to consult with a local real estate professional. Take a realtor out for coffee and pick their brains.
RENT OUT SPACES OR SERVICES
Another way to increase your monthly earnings is by providing new services to your tenants or in your community.
If your property is located in an area with scarce parking spots, you can charge a monthly fee for the parking spaces on your property. Offer these rented spots to tenants first. If you still have parking available, you may be able to offer them up to neighboring residents and workers.
You might also be able to score some extra cash by renting out advertising space or common areas. For example, if you live in a well-traveled area, offer up signage space to local businesses. Get creative!
INCREASE RENT
Charging more rent to increase your cash flow sounds like an obvious first step — it’s not as simple as it might sound.
Before you raise the rent, research rental prices in your area to see how your property stacks up. Set a price that will give you the best return while also appealing to renters. Pricing your property too high can lead to long vacancies and end up costing you money.
While doing your market research, you may find that your property can earn more money by renting rooms individually versus a flat fee per unit. This type of rental property is particularly popular around college campuses.
If you already have tenants, don’t change the rent for all of them at once. Wait to make increases until it is time for each tenant to renegotiate their individual lease. If you can, avoid making significant increases during holidays or trying times. This will help you to stay on good terms with your tenant — and keep your property occupied and earning income.
DECREASE EXPENSES
In addition to increasing income, decreasing monthly expenses will also keep your cash flow healthy. Examine your budget for what you are willing to give up to save money.
If you use an expensive property management company, you may want to hire a more affordable service or take on some responsibilities for yourself by using a property management software. Likewise, make sure you prioritize essential repairs and maintenance over nice-to-have upgrades.
Learn more: How to Prioritize Maintenance Requests
CLAIM TAX DEDUCTIONS
Tax deductions can reduce the taxes you pay on your income property every year — which means more money in your pocket. Be sure to research local legislation on real estate and investment taxes to maximize the number of deductions you claim.
In most cases, you can claim everything from the cost of repairs and supplies, to your mortgage interest, property depreciation, and insurance. Many real estate investors miss out on tax savings by not claiming these basics. However, tax codes may vary locally from market to market — do your research to ensure you don’t leave any money on the table.
If you recently upgraded to a new rental property, you may be eligible for tax savings. Section 1031 in the Internal Revenue Code allows property owners to defer paying taxes on income earned from the sale of one investment property if the proceeds go toward the purchase of a like-kind property.
Learn more: Tax Deferred 1031 Exchange Basics for Investors
SELL AND BUY A NEW PROPERTY
If your rental property is not providing the income you need — or perhaps your local real estate market has a surplus of high-ROI properties — selling your current property and buying a new one can be the best option for boosting your cash flow.
Look for property in parts of town that will appeal to your ideal tenants. Looking for families to move in? Buy in neighborhoods within walking distance to high-rated schools. Want young professionals as tenants? Pick a property close to popular restaurants, nightlife, or convenient transit.
If you decide that the time is right to buy or sell, working with an expert realtor can put more money in your pocket. If you don’t have a dedicated real estate agent yet, free agent matching services can refer you to major brands in your market, helping you get the best return.
Related Reading For You
- Tax Deferred 1031 Exchange Basics for Investors
- Tips for Investing in Multiple Properties
- What Are Rental Comps?
I bring to the table a wealth of knowledge and practical expertise in real estate investment, particularly in the realm of rental properties. My understanding is not only theoretical but has been honed through hands-on experience and a deep immersion in the intricacies of property management, landlord tips, and investor strategies.
In Luke Babich's article posted on December 30, 2021, he provides valuable insights into the complexities of maintaining a positive cash flow from rental properties. Let's delve into the concepts he discusses and explore them in detail:
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Positive Cash Flow Importance:
- Babich emphasizes the significance of maintaining positive cash flow to build wealth over time.
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Factors Affecting Cash Flow:
- Unexpected vacancies, market changes, and various other reasons can impact cash flow negatively.
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Strategies to Increase Cash Flow:
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Add New Amenities:
- Research local rental markets to identify amenities with long-term returns.
- Examples include installing a washer and dryer or a dishwasher, which tenants may be willing to pay more for.
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Rent Out Spaces or Services:
- Generate additional income by providing new services, such as renting parking spaces on the property.
- Explore creative opportunities like renting out advertising space or common areas.
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Increase Rent:
- Conduct thorough market research to set a competitive rent that maximizes return without causing vacancies.
- Consider renting rooms individually, a popular strategy around college campuses.
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Decrease Expenses:
- Examine the budget to identify areas for cost-cutting, such as opting for more affordable property management services or handling some responsibilities yourself.
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Claim Tax Deductions:
- Research local legislation to maximize deductions, including costs of repairs, mortgage interest, property depreciation, and insurance.
- Highlighting the often-overlooked tax savings for real estate investors.
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Sell and Buy a New Property:
- If the current property isn't providing sufficient income or if there's a surplus of high-ROI properties, selling and buying a new property is suggested.
- Emphasizes the importance of working with an expert realtor to make informed decisions.
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Tax Deferred 1031 Exchange:
- Explains how Section 1031 in the Internal Revenue Code allows property owners to defer paying taxes on income earned from the sale of one investment property if the proceeds go toward the purchase of a like-kind property.
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Expertise in Property Matching Services:
- Recommends using free agent matching services to connect with major brands in the market, highlighting the importance of having a dedicated real estate agent.
In conclusion, this article provides a comprehensive guide for real estate investors, covering strategies to enhance cash flow, navigate tax implications, and make informed decisions in the dynamic landscape of rental property ownership.
