You’re the owner of several rental properties. This may be a mix of single-family homes, apartment units, duplexes, or even condos.
How well are you managing the cash flow for them?
It doesn’t matter whether you’ve been a property manager for one year or ten years — knowing the most efficient cash flow management methods is crucial.
As a rule of thumb, a good baseline for cash flow is around 8% of the rent. If you’re not seeing profits at or near this rate, then it’s time to make some changes.
Here’s a quick guide to help ensure you’re doing everything possible to do so.
Let’s jump right in.
It All Starts with the Tenant
It doesn’t matter how great of a cash flow strategy you have. If you’re renting out to the wrong tenants, you’re going to struggle to collect rent on time, every time.
So to start, you need to have a process that boosts the odds of renting to trustworthy tenants. Here are several ways you can do this:
- Go for a reasonable credit score (this shows they can manage their financial accounts)
- Review their credit report (check to see if there are evictions or money owed to landlords and utility companies)
- Verify their income (call employers and state agencies to ensure they’re collecting checks in the amounts they claim)
- Ensure they’re earning at least 3x the rent before taxes
- Run a criminal background check (unlawful activities can prove expensive to property owners and can drive down rental rates)
- Ask for rental history (call past landlords and ask about on-time payments and conduct)
These are just some of the ways property owners ensure they’re renting to the right people.
Take Vacancies into Account
No renters = no cash flow.
If you’re dealing with many empty homes and units, then it’s time to learn ways to mitigate the issue. Ideally, you want to keep your vacancy rate at or below 5%.
So be sure to take this into account when you’re calculating your annual turnover.
For instance, if you’re renting a fourplex, then this would equate to around 2.5 months of vacancy each year (4 units x 12 months each unit = 48. Divide 48 by 0.05 comes out to 2.4 vacant months).
By knowing this, you can give yourself time to make needed repairs or renovations before putting the “For Rent” sign back up (and to find qualified tenants).
Try Stagerring Your Lease Expirations
Many landlords want long-term tenants, so they often have leases that are 12 months or longer. And if you’re in a college town renting to students, then you’ll find many of your tenants will come and go around the same time each year.
This creates an issue with consistent cash flow because you’ll have tenants turning over simultaneously. Trying to cover debt at this time will just put you in a financial bind.
So to prevent this, you should consider offering different lease terms. For example, you can offer the typical 12-month leases, along with 14-month leases, 24-month leases, and so on.
Be flexible with the tenants — some may know exactly how long they want to stay.
Also, be sure you’re renting to tenants throughout the year, so everyone’s not leaving at the same time.
Generate Monthly & Annual Financial Reports
Waiting until the end of the year to see how well you did with your cash flow isn’t feasible. It’s critical to keep an eye on your rental income every month.
In doing so, you’ll be able to spot shortcomings and make adjustments so you can reach your cash flow potential.
You can do this by generating monthly reports. Be sure to also review your annual reports to see if you’re doing better, worse, or equal to past years.
Don’t Undervalue Your Services
Reviewing your contracts every now and then is a good idea to ensure you’re renting at market rates. As time goes on, you’ll find businesses moving to town and more homes being built.
This can result in an increase in taxes and rental rates for homes in surrounding communities. Be sure you’re not charging too low compared to competitors, so you’re not missing out on cash flow.
It’s also essential to review your mortgage to see if it’s an ideal time to refinance or switch insurance providers. Finding ways to reduce your expenses can help to boost your rental profits.
Stop Losing Money with Your Rental Properties
These tips are an excellent start to giving your rental cash flow a boost. But it’s always good to get a pair of professional eyes to look over your finances.
Hiring an accountant experienced in real estate is key. This way, they can review your financial records and make recommendations to boost your cash flow.
This is exactly what (Company Name) does for its property owner client base. So if you’d like to learn how we can help you, then give us a no-obligatory call today!