Becoming a landlord is no big deal these days. With some research, you can learn how to invest in real estate with no money and earn a rental income. However, the trick to running a successful rental business is all about keeping your books balanced and ensuring your expenses don’t exceed your income.
While that might seem straightforward with so many bills, it can quickly get overwhelming. That’s why you need to have the right metrics to assess the performance of your rentals.
Cash flow is a popular go-to for most investors because it’s not complex to calculate and gives you a good idea of your business’ growth. Here are the top 6 indicators of good cash flow in rental properties.
Top 6 Indicators of Good Cash Flow in Rental Properties
Location is often the foundation of everything in real estate. Houses in prime locations with highly coveted neighborhoods allow property owners to charge more rent for the privilege of living there. The more money your rental earns, the higher your profit margin. Consequently, investing in properties in valuable locations is an excellent predictor of cash flow rate.
Neighborhoods with good schools, offices, restaurants, and bars within their vicinity are often highly sought after because they make running errands easier. In addition, the higher the walkability score of the area, the more attractive the location is to potential tenants.
Another indicator of good cash flow is your property type. Short-term rentals like vacation houses, Airbnb, and short-let serviced apartments have a higher cash flow rate when managed with the proper techniques. However, the landlords have to take on more risk as these units are often furnished apartments, which means there are more things to maintain.
Also, extended vacancy periods can incur more utilities, salaries, and general upkeep costs. But with the right strategies, you can guarantee success for your short-term rentals. If you’re considering going into this property type, talk with some reputable private money lenders in Maryland to get the best deal for your next real estate investment.
When people think about cash flow, they often consider how much you make. However, on the other side of the equation is your total expenses. In other words, you can increase your profit margin if you have significantly lower bills.
Ironically one of the ways savvy landlords reduce their expenses is by making strategic upgrades. For example, opting for low-flow taps and energy-efficient appliances can save you a ton of money in utilities. Tenants responsible for such bills will even be willing to pay a little extra for the cash they get to keep. Also, upcoming neighborhoods with low property taxes can help you cut costs.
High Curb Appeal
Many investors tend to focus on the inside of their house when the outside is just as important. Tenants want to live in a stunning home and impress their friends and neighbors right from their doorstep.
Investing in a house with high curb appeal has significant advantages. Potential renters can fall in love with your home even before stepping inside and sending an application. Thankfully, curb appeal is something you can work on so you can still make some upgrades to your existing rentals.
A modern interior is always a plus for potential renters looking for a new home. Open-concept flooring and minimalist spaces are trending, so tenants are willing to pay more for homes that look Pinterest-worthy. Other features like a walk-in closet, kitchen pantry, and storage space can influence tenants to pay higher rent and increase their cash flow rate.
You can also invest in modern fixtures like lights, countertops in the kitchen, flooring, appliances, and vanities to sway suitable renters. These conveniences make a living in a rental much more comfortable and have an excellent ROI.
Besides the interior, tenants also like it when their home is convenient. Additional perks like a backyard, a pool, an in-building washer and dryer, and free parking are attractive to renters. Some consider these a ‘must-have’ before moving into a new rental.
Investing in properties where you can provide such allowances to your tenants allows you to become their first option and make more money.
How to Calculate Cash Flow
Cash flow is one of the most straightforward metrics investors can use because it’s so easy to calculate. To estimate your cash flow, you must subtract your monthly expenses from your total rental income. In other words;
Cash flow = Monthly income – Monthly expenses
Thus where your income is rent, your expenses should include fees like mortgage repayments, property taxes, insurance premiums, utilities, wages and salaries, and repair and maintenance.
3 Ways to Increase Rental Property Cash Flow
Keep Your Vacancy Rates Low
One of the best ways to increase the cash flow of your rental property is to ensure that rent payment is consistent. In other words, you should keep your vacancies to a minimum. High turnover rates and more prolonged vacancies often mean more expenses spent without the benefit of income.
Work on your marketing skills to attract more high-paying tenants, and conduct a thorough screening process to ensure you have the best candidate. Then, when you have a responsible renter, you can offer them a longer lease and make valuable upgrades to encourage them to stay.
Make Strategic Renovations
Dilapidated houses are only attractive to some and are one of the reasons tenants move out in search of better accommodation. Even if your building isn’t new, it doesn’t have to look old. Strategic renovations like a fresh coat of paint, new countertops, and modern flooring can spruce up your apartment.
However, it would be best to remember that not all upgrades are worth the money. If you want to make the most of your funds, aim for renovations with the highest ROI. This habit will ensure you attract and maintain more tenants and reap maximum benefit from your investment.
Perform Routine Maintenance
Another reason tenants tend to move out and halt normal cash flow is their landlord failing to keep up with repairs. Repairs and maintenance of the property are some of the essential duties of a landlord, and negligence often has severe results. If your renter doesn’t sue you, they’ll at least become dissatisfied and leave.
On the other hand, routine maintenance can help you spot problems before they become more significant. If you act fast, you can nip such issues in the bud and avoid spending exorbitant fees on repairs. Your roof, electrical work, plumbing, and appliances are examples of things that require routine maintenance.
That’s a wrap! Ensuring your property has a positive rental cash flow can help you stay on track. You can start the right path by investing in rentals in prime locations with high curb appeal and additional amenities.
Also, you can work on reducing your expenses. If you want to increase your cash flow, you can work with a property management company to keep your turnover rates low, perform routine maintenance, and decide on the best renovations for your rentals.