You’ve probably heard several stories about people who have seemingly mastered the art of renting out real estate properties. From the moment that they got into real estate, all they have had to do is sit back, relax, and collect thousands of dollars in extra money each month.
These stories may be what pushed you to start renting out your properties in the first place. Building equity while maintaining a solid cash flow and raking in a monthly profit- seems like a no-brainer, right?
However, this is not how the story actually plays out for many landlords. Those who seem to snap their fingers and have thousands of dollars in disposable income from their rental properties overnight likely have less than ideal situations going on behind the scenes, especially when it comes to debt.
More often than not, landlords find themselves in a situation where they have high equity as their properties appreciate as well as enough income to keep these properties afloat.
If you’re in this boat, know that you’re in good company. Making enough for your property to support itself and for you to make headway toward paying off your mortgage is no small feat. Some of the real estate “experts” who claim to have thousands in cash flow are strapped with so much debt, that you might be in a better position financially than they are just by being able to build this equity and pay off debt!
However, we also recognize that it is no fun to build your equity and have low cash flow. What’s the point of putting in all of the time and effort it takes to maintain and rent out your property if you still have to take on additional side hustles or work extra hours to make ends meet each month?
If you have high equity, but you are struggling with boosting your cash flow, know that there are ways to change your situation.
When it comes down to it, your cash flow is what you have remaining after you’ve collected your rental income and paid for any expenses. So fixing a cash flow problem can actually be quite simple: find ways to either increase your income or decrease your expenses.
While we know this is often easier said than done, we have a few tips to help you get started:
Consider the big picture
One of the best ways to increase the value of your home is to make home improvements. According to data from Opendoor, finishing your property’s basement can increase the resale value of the home by 6.6%, adding up to a third bedroom can increase the resale value by 6.2%, and installing hardwood flooring can increase the resale value by 3.4%. Whether you are making improvements to the inside or the outside of your home, these changes are only going to boost the value of your home and the amount of money you are able to charge tenants to rent out your home.
If you have been spending money on renovations and improvements for your property recently, you might notice that you have less cash flow. While that might be frustrating at the moment, when you look at the big picture, you’ll realize that these improvements will help you charge higher rental rates in the future, which will help increase your monthly cash flow down the road.
Think about the difference it will make over time if you are able to charge $50 or $100 dollars more a month in rent due to improvements you have made to your properties. If the reasons behind your low cash flow will lead to greater cash flow in the future, you are moving in the right direction.
Consider your expenses
If your cash flow problems are not due to helpful changes like the ones mentioned above, your next step is to start looking closely at your rental expenses.
Create a spreadsheet where you detail all of the expenses that are associated with renting out your property. This will help you see areas where you can make changes to help reduce expenses and maximize your cash flow.
For instance, maybe your tenants are not taking care of your property and allowing the grass to get overrun, neglecting to clean soap scum and rust from plumbing fixtures, letting garbage pile up in the home, causing damage to household appliances. This means that in order to maintain your property and keep it looking nice, you have to spend money performing services and repairs like hiring people to clean trash areas, fix clogged toilets and pipes, and maintain the lawn.
While you can expect to set aside money for maintenance and repair of basic wear and tear to the property each month, excessive damage or carelessness just cuts into your profit.
You can keep this from happening by charging an extra maintenance or grounds maintenance fee for your tenants to account for the extra expenses that you are accruing, or you can spend more money on the front end to screen tenants and increase the likelihood that you will find tenants who will treat your properties with respect.
If you are spending extra money on factors that can be resolved, like maintenance issues, it can add up if you have multiple properties and have to pay these increased expenses each month. By tracking your expenses, you can pinpoint areas where you can step in and reduce your monthly costs.
Consider your rental rates
When you are not maintaining a solid cash flow, but you have reduced your expenses and charged additional fees, you should start to consider what you are charging tenants to rent out your properties.
Rental rates, particularly in northern Virginia, are rising, and if you are not capitalizing on the going rates for homes in your area, you could be significantly hampering your cash flow.
Imagine if you could easily be charging $1,000 each month for rent, but you are only charging $900. That’s $100 per month per property that you are losing just because you are not asking tenants to pay what your properties are worth.
You can solve this problem by working with a property management company. These companies have the expertise and experience necessary to properly price your property, and they will make sure you get every dollar you can when renting out your home.
Consider your property leveraging
You can also increase your cash flow by reducing your debt or refinancing your properties.
Instead of paying mortgage payments on all of your properties, if you can consider your leverage and use the snowball debt paying method to pay off a property or two, that will free up extra cash each month that was originally going toward mortgage payments.
Furthermore, when interest rates are low, and you have high equity, you can refinance your properties and significantly decrease your monthly mortgage payments. This will put extra cash into your pocket each month.
Consider hiring a property management company
If you want to take advantage of rising rental rates, find great tenants who will take care of your property, and minimize your maintenance costs and other monthly rental expenses, hiring a property management company like RentSimple will help.
RentSimple has the resources and connections necessary to provide 24/7, high-quality maintenance for your property, and we screen tenants thoroughly so that you don’t have to worry about property damage outside of natural wear and tear.
Because we solely focus on rental properties, we know exactly what to charge for rent in any area in northern Virginia, and we will make sure you charge rent that is fair for both you and your tenants.
If you are struggling with your cash flow, working with experts at RentSimple can help turn things around. We handle all of the complicated parts of the rental process so that you can focus on making a profit.Learn more about how RentSimple can help you improve your cash flow and find success renting out your properties when you visit our website.