Generating real estate cash flow is the primary goal of many real estate investors. Of course, there is more than just one way to make money with rental properties. For example, long-term wealth and equity generation are also goals for those with rental property. However, most investors are trying hard to increase income in the near term. This blog will reveal our top 5 tips on how to increase real estate cash flow. Before we begin, let’s review some important terms and concepts.
Background on Real Estate Cash Flow
In a nutshell, real estate cash flow is the money that you have left over from rental income on your property after all of your business expenses. Notice that we didn’t say, “rental property expenses.” You are not an amateur dabbling anymore or you wouldn’t be here at Mashvisor honing your real estate investing skills. No, you are a professional now and your business is real estate rentals. All of your expenses – your vehicle, your phone, your office space, your health insurance, and any employee costs must be counted. Of course, interest on debt may well be your single largest expense after taxes, so take a close look at your debt costs when calculating your cash flow. You can find an excellent cash flow calculator here at Mashvisor if you need one.
Tip 1 – Refinance Your Debt
If you want to increase your real estate cash flow immediately, the fastest way is by restructuring loans. Over time, your property builds equity in two ways. One way is passively through a rising real estate market value. In general, and over the long term, properties are worth more year after year. The second way is through equity you actively add from improvements. As you renovate and remodel when tenants turn over, you add considerable value to the investment property you own.
An increase in value for your rental property affords you an important opportunity to increase your positive cash flow. If you have a loan for say five years on a property, speak to your lender about refinancing that loan to ten, twenty, or more years. You may also be able to pull out some cash from the property and then use it for repairs or improvements. You may even use it to purchase another property. Smart real estate investors work closely with lenders and watch their equity. By changing the terms of your loan or loans, you can immediately reduce your monthly payment and add to your positive cash flow.
Tip 2 – Cut Your Costs
The least glamorous way to add to your real estate cash flow is to save money on expenses. Are you driving a new Ford Super Duty around all day with an empty cargo bed? If so, why? A Ford Ranger may cost you half the money. A pre-owned truck may provide the same ownership experience at a significantly lower monthly payment rate. Cutting your vehicle expenses also has a snowball effect. You pay less in insurance for less vehicle. Your excise vehicle taxes are lower and your interest payments are lower.
Do you even need a truck? Home Depot and Lowes rent trucks by the hour. Rental car companies rent them by the day and the week. If you want to increase real estate cash flow, you need to look at both ends of the equation, not just the cash flowing out of your real estate.
If you are leasing an office space take an honest look at whether you could be working from home. Sure, you can deduct office space against your earnings, but you can also deduct home office space. Do you have a receptionist? Could an outsourced shared answering service fill that role? Our point is that any business relies on a lean back-end to maximize profits.
Finally, if you are not working with a real estate tax attorney, be sure you do before ever considering a sale. You may be able to get away with an accountant for your day to day tax filing needs, but if you begin to sell as well as buy properties, you need a tax attorney who specializes in real estate. They will cost you more than a bookkeeper but could save you much more than their fee in saved taxes.
Tip 3 – Increase Rents
If you are not increasing rents annually, shame on you. Begin to do so and do so to the full extent the market can bear. Mashvisor can help you estimate what rents you can expect in your market.
It is not easy to raise rents. Tenants rightfully fight to keep the rents low. You owe it to yourself to fight harder to keep them at the top of the market for your investment property’s value and periodically increase your rental income. Know the law, know the market, and increase rents even if it means losing a tenant once in a while (here’s how to avoid that). Long-term, you need to keep up and renting out for more increases cash flow.
Tip 4 – Shed Any Utilities You Can
If your state and local government allow you to, be sure that any utilities you can have tenants pay for are being handled that way. Nobody will conserve water, electricity, heat and other utilities better than the person paying for it. You won’t just be slashing costs, you will be helping the environment.
Tip 5 – Be Sure You Maximize Local Rebates
If you do any home renovations or remodels, be sure that you tap into any available rebates and tax credits. Many U.S. utilities are required by the state to offer rebates on things related to energy savings. Windows, doors, furnaces, hot water heaters, thermostats are all the most common rebate-focused renovations. Plan ahead with your contractor to follow the letter of the law and keep your paperwork neat in order to get the rebates your deserve. These impact your real estate cash flow in three positive ways. You pay less for repairs now, and you add equity for the future. You also minimize your expenses if you have to pay for the utilities.
Real Estate Cash Flow – The Big Picture
We have focused this article on things you can do today to increase positive real estate cash flow. Of course, the cash flow-generating rental property you purchase can make or break your business. However, you don’t buy properties every day. When you do consider new rental properties, whether long term or short term in nature like Airbnb properties, be sure to do your homework. And there is no better tutor than Mashvisor. We have all of the property location heatmaps, rent estimators, and cash flow calculators you need to analyze and select the best properties for maximizing your real estate cash flow.