5 Ways to Maximize Your Rental Property Cash Flow

5 Ways to Maximize Your Rental Property Cash Flow

The goal of most property investors who own rental properties is to supplement their income by creating reliable cash flow from the rent and appreciation of their properties. Rental property ROI has many factors, but cash flow is easy to comprehend. It is the net amount of income the property owner takes home after expenses.

Most work to maximize monthly/annual cash flow is done before purchasing the property. There are several things property owners can do to increase money coming from their investments.

1. Don’t be afraid to increase rent

The most obvious way to increase cash flow is to raise the rent for the property. This can also be the most difficult because tenants never want to hear that their rent is increasing. Despite it being a tough thing to ask tenants, property owners must be willing to do it because small amounts of money add up to a lot. Not asking one tenant to pay an extra $25 in rent would be $375 in cash flow missed in a year. If there are 10 tenants in that building, that number becomes $3,750 lost.

If the tenant-landlord relationship is healthy, reasonable raises in rent should not be too much to ask. With this in mind it is important to keep tenants happy as it will pay off in the long run.

2. Make smart repairs and renovations

While it can be tempting for property owners to go cheap on repairs and renovations to save money in the short term, this can hurt in the long term. Repairs that are done for cheap are often done poorly or cannot be sustained for a long time. This results in property owners having to pay for the same repair multiple times throughout the property’s lifetime.

This problem can be avoided by simply paying the premium upfront to have repairs and renovations that last. If done properly, repairs will only have to be paid for and worked on once upfront, thus saving the property owner money in the future.

3. Minimize the property expenses

Although it is often not smart to be cheap, minimizing the expenses of a property is important for maximum cash flow. While it can be tedious to shop around for low rates on things like third-party vendors, getting the best possible rates will add up to a large amount of money saved over a long period of time.

Another option for minimizing expenses is putting the burden of some expenses on the tenants. Having tenants pay for things such as utilities will significantly help your cash flow. If your property isn’t equipped with separate meters, it’s time to implement RUBS, a ratio utility billing system that divides utility bills among residents and takes the burden off the property owner.

4. Pay a larger down payment

It may be tempting to pay a smaller down payment but it can be a worthwhile investment. A larger down payment means you will be borrowing less and thus paying smaller monthly payments. This will result in greater cash flow for the property owner.

Larger down payments are also a way to avoid paying mortgage insurance. Putting down at least 20% of the home’s value allows borrowers to avoid that fee resulting in increased cash flow.

5. Refinance if it makes sense

One option many property owners will face at some point is the decision of refinancing. This can be a poor decision as the borrower may end up paying off the loan for many extra years. This can result in property investors paying more on a mortgage than they would have if they didn’t refinance. Lower monthly payments are tempting but not always the right decision.

Refinancing is not always a bad choice, however. If you will not end up paying more than you would have, refinancing can be a great idea. It can also be a good option for investors who believe they can use that extra money to reinvest elsewhere.

If you’d like more tips for increasing your ROI, see 5 Renovations to Maximize Your Investment Property.