Real Estate Investing – Get Better Cash Flow from your Rental Properties

If you own rental real estate, you know how vital it is to have a positive cash flow from your properties.   With a positive cash flow, you can weather a down real estate market, keep from dipping into your other investments or savings and sleep well at night.

Here are some suggestions on how to evaluate your properties to make sure that you are keeping a taut ship – keeping expenses as low as possible and income as high as possible.

Controlling Expenses

Energy Consumption

If you own a multi unit building that does not have separate meters, the following items should be checked.

  • Excess water usage by looking for leaky faucets, running toilets, broken faucets, and old style toilets that use more water than modern low-flush versions. This will only help you control expenses if you are responsible for the water costs, as opposed to having a separate meter for each of your tenants. However, even if you don’t pay the bill, keeping drips and breaks under control will make your tenants happier, keep water staining down and water damage to a minimum.
  • Insulation in older buildings. Sometimes in older buildings, even the attic is not insulated. Wall insulation can also cut down on noise levels between units. Again, if you don’t pay the heat bills, this won’t cut your costs down, but it will help next time you rent the units and you can brag about the low heat or cooling bills.
  • Weatherization. Making sure that windows and doors are weatherized properly with caulk and weather stripping will also cut your energy bills in a non-metered rental.
  • Heating and Cooling Systems. Fuel efficiency has gone up dramatically in newer models. Replacing your existing unit could pay for itself in a short time if you are footing the heating and cooling bills.  If you have one large furnace or air conditioner for all rental units, you might have one per unit installed so that the renter can absorb the cost instead of you. If you can’t do that, consider installing some metering systems so you can charge back the cost for each unit to the renter. You could also install smart thermostats that allow for economy and comfort settings.

The below suggestions may benefit all rental property owners, even single family residences.

Don’t over improve the property.

It’s a rental after all. Do you really need to upgrade the kitchen cabinets with new high end cabinets, or would stripping, sanding and painting do the trick? Go for durable over stylish. Sure nice wood floors are in style now, but wouldn’t good solid tiles last longer and look just as good?

Review the interest rate you are paying on each of your rental mortgages.

Is there a way to lower it by refinancing to a lower rate, lengthening the term or removing private mortgage insurance that can be removed?

Understand the county’s tax appraisal.

Challenge it if you think it is too high.  This could save you some money on real estate taxes.

Analyze property management.

If you use a property manager, periodically review their services and costs to make sure you are getting what you pay for and that the prices are comparable to others in your area. Periodically evaluate your need to use a property manager at all, or for certain services. You may find yourself getting more comfortable handling some aspects of landlording over time.

Review insurance.

Do you have enough insurance, too much? Make sure that your investment will be covered at replacement value in case of fire.

Are you paying too much for the right amount of insurance. It can pay to compare rates or perhaps raise your deductibles if you are in a position to do so.

Be efficient in repairs.

Are you paying too much for repair material and labor? Join and attend a local real estate club to find out who does the best work at the best price and how you can get contractor or other discounts on materials if you do the work yourself. If you can get a discount sometimes but not others, try to group the materials to be purchased into the time when you can get a discount.

Controlling Income

Update rental pricing.

Are your rent prices keeping up with the rental market for comparable rental properties? If not, raise the rent for an existing tenant after doing an improvement. Consider raise the rent anytime you are ready to market newly vacant properties.

Add income opportunities to existing property.

Can you add rentable areas to your existing properties? Perhaps you could convert a garage into a storage unit to rent, or add an apartment in the basement of a larger house and rent it separately.

Can you add services which would allow you to collect additional income – vending machines or coin operated laundry facilities for example.

Keep income flowing.

Make sure you can evict quickly if you need to by having a lease with language that supports it.

Put a late fee clause in your lease, to encourage prompt payment of rent and allow collection of additional money if not paid on time.

Sources: Real Estate Business and Investment Opportunities by Bryan C. Wittenmyer

What tips do you have for upping rental income and decreasing rental expenses?

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