LET'S TALK ABOUT: Cash-flow optimization

[Andrew West]

Okay,

Admittedly, I don't hang out in every corner of the BP-verse, but from what I can tell, there's a very under-discussed topic, that we need to be talking more about.

Maximizing cash flow on currently owned properties 

So much is said about "finding the next deal" and hustling to acquire new properties to add to our portfolios to grow our cash flow. But that takes MONEY! And yes: Money is everywhere and there are always solutions to getting more capital for more deals (creative financing, BRRRs, blah-blah-blah). That's all great.

But, you know what's free and can grow our cash flow just as fast (if not faster)? Focusing on maximizing the returns on what we already own. It's a false assumption that the cash flow we achieve when closing the deal, is the most we're gonna get. It's NOT.

In my opinion, this is one of the superpowers of real estate investing, and I just learned it on accident. Quick case study from my experience:

We closed a triplex outside metro Detroit. Cash flow at acquisition: $475/month. Over 10-months, and some tenant turnover, we've been able to increase the rent in all 3 units. And, in shopping around for insurance, I was able to switch insurance carriers and slash the annual insurance premium in HALF (while keeping the exact same coverage). When all was said and done, the cash flow increased to $932/month. So, we effectively DOUBLED our cash flow on the property in less than a year....FOR FREE. We could've doubled our cash flow by spending time and money locking down another, similar property (and believe me, we're still looking for these!), but we just did the same thing in a fraction of the time, and for no money at all.

In reality, the ways of maximizing cash flow are limited. There's only so many line items in a property's P&L. You can either increase rent, or decrease expenses in order to improve cash flow. But I'm curious, what strategies have worked for you in optimizing the cash flow on a single property? What success stories do you have to share with the community?

[Will Barnard]

Decreasing expenses is always a play but it is limited in how far you can increase cash flow and thus, value of the asset (by the income approach). Raising gross rents is certainly the best play but that is not always "free". In many cases, it requires capital improvements or operating capital to improve the units before you can raise rents. Certainly if you buy and inherit tenants at below market rates, you have the opportunity to simply raise them once that lease expires, but most cases, the large rental increases comes through improvements (value adds).