6 Things You Need to Know About Buying Rental Property
Ever heard the expression “Cash is King”? When buying rental property to buy and hold, cash flow is certainly a royal asset. For real estate investors to be successful, the income must exceed the expenses. The residual income left over after all the expenses are paid and accounted for is the cash flow. This is paramount for investors to understand when buying rental property.
So if cash flow is desired, then a logical question to ask is what can investors do to further increase the cash flow? Well, luckily there are a multitude of options. Today I’m going to touch on 6 great ways to increase cash flow when buying rental property.
- Raise Rents
Perhaps the most obvious activity is raise rents. It may seem obvious, but many property owners are fearful to raise rents in fear of losing their tenants. This is why it’s so important to know what the competitors in the neighborhood are charging for rent. If you are lower than comparable properties, then raise your rents.
- Pass it Along
Costs go up every year. Insurance, taxes, utility prices, and bank & property management fees to name a few, all typically go up every year. As a property owner you shouldn’t absorb all those increases. You need to pass along at least a portion of these onto your tenants.
- Make smart improvements
Make the right kind of improvements to the units. If your rental property is desirable to tenants, then they will want to live there. Kitchens and bathroom are the key rooms that tenants expect to be in great order and looking good. In this regard buying rental property is no different than buying a personal residence. You need to ensure your improvements are in line with the property and will justify the rent increases you want to pass along. Make too make expensive changes and tenants may not be willing to pay for them.
- Get the right tenants
This is so important when buying rental property. You don’t just want any tenants. You need good rent paying tenants that will be respectable of your property. Run criminal and background check on every potential tenant. Choose smartly and you will have a better chance of getting good tenants.
- Create Supplemental Income
If you own a multi-family complex there are several opportunities to make other forms of income from your property. If you allow pets start charging a pet fee. If you live in a city with extreme weather conditions charge for covered parking spots. Install coin operated laundry, install a vending machine. With all of these options you need to know what your tenants will bear and if the additional work to implement these supplemental income streams will be profitable.
- Lower Expenses
Increasing cash flow, not only involve bringing in more income, but also involved lowering expenses. Here’s a few to consider that can help you grow your cash flow.
- If you pay for water, install water saving shower heads in all bathrooms to reduce water bills
- Install L.E.D. lighting to reduce electricity bills.
- Don’t defer maintenance. Perform regular maintenance to avoid larger and more costly repairs later.
- Renegotiate your contracts with your landscaper, pest control companies, general contractors etc.
As you can see there are a multitude of things you can do as a property owner to further increase your cash flow. With a little research and proper planning you can make the proper changes to see positive results. Positive cash flow is a wonderful asset of buying rental property. If you are interested in learning how investing in real estate can benefit YOU, drop us a line.
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