An essential factor in maintaining financial stability as a real estate investor is achieving the appropriate balance between the passive income your property is generating and net expenses to include bills, maintenance, and taxes.
It can be challenging to determine what is the correct rental fee to charge, but it’s even more challenging to optimize your cash flow without raising your tenant’s rent.
It is understandably tempting from a landlord’s perspective to simply increase rent when they want to increase their profit margin. Although reasonable annual rent increases that are accurately correlated with inflation and cost of living are perfectly justifiable, the key to long-term sustainability is to increase cash flow without having to rely solely on adjusting rent.
Our team at DG Pinnacle Commercial has years of experience providing expert analysis and advise to real estate investors to improve their businesses. We’ve leveraged that knowledge to provide you with the following insights on how to boost cash flow for your rental property.
Nothing hurts your bottom line more as a landlord than a vacant property. Every passing day that a rental unit is unoccupied, your overall cash flow is taking a major hit.
An effective way to mitigate the potential for a vacant property is to plan in advance for tenant turnover. It’s never too early to start contingency planning for when the lease expires. Having a new tenant lined up or an agreement in place with the existing occupant to extend the lease are surefire ways to save you money in the long run.
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Every passing day that a rental unit is unoccupied, your overall cash flow is taking a major hit.
If you are a relatively new landlord, you may want to be the “nice” property owner and tend to overlook tenants missing payments or submitting them past the deadline. Although there are certainly situations with extenuating circumstances where it may be the right call to accept a late rent check, the best practice is to address any payment issues as soon as possible. Missed or delinquent rent is an immediate and substantial detractor when it comes to cash flow optimization.
Be sure to enforce late fees appropriately and send out timely notices for non-payment.
Retaining long-term tenants who exhibit the ability to pay their rents on time and not cause you any issues as a property owner will pay dividends when it comes to cash flow. Reducing your turnover rate means less marketing costs to find new tenants and less maintenance costs because you do not have to constantly touch-up rental units for showings. Focus on keeping communication lines open with your best tenants and be responsive to their requests to improve the odds of them renewing their leases.
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Reducing your turnover rate means less marketing costs to find new tenants and less maintenance costs because you do not have to constantly touch-up rental units for showings.
Have minor plumbing issues that have needed to be fixed for a long time? Are you conducting routine maintenance inspections on all appliances? Taking a proactive approach to these preventative maintenance checks can save you tons of money down the road and have the added benefit of improving your overall cash flow.
Solving these relatively small problems now will prevent them from snowballing into bigger (and more expensive) problems in the future. Along the same lines, you may consider installing high-efficiency furnaces and air conditioners that can lower utility costs—which is particularly beneficial if you are the one paying for them.
Even if your tenant is billed for these costs, lowering them can entice them to renew their leases or give a favorable referral when it comes time to find a new tenant.
Home improvements that are value-adds to your rental property are an ideal way to justify a rent increase. As an added bonus, certain improvements can also facilitate a smoother rental property turnover process. For instance, carpet is hard to clean in-between tenants, so replacing it with hard wood can save you the time and hassle as well as allowing you to charge a higher base rent—both of which will improve your cash flow as a whole.