Best way to Maximize Cash Flow on Rental Properties

9 Replies

Hello Everyone,

I was wondering if any experienced landlords had any tips for maximizing cash flow in duplexes/triplexes.  To me it seems as thought the initial cash flow that you begin with after purchasing the property doesn't change much until you raise rent.  Has any creative finance strategies/improvements made to the property that can help increase cash flow?  In this case I'm interested in maximizing cash flow in general.  Thanks in advance.

Michael

Hi Michael,

While not super creative, doing all the basic landlording blocking and tackling well helps--keeping vacancies low, turn arounds fast, and maintenance costs down. I have heard of storage/garage or laundry angles for revenue (if you have these to charge for), but for most 2-4 unit owners, the early story is probably not a quick top line growth story (but a slow one as the market will usually incrementally justify increases) but you can improve the bottom line (alot) as a really diligent hands on landlord in my opinion.... so your costs can come down, be it for DIY repairs, painting, mowing, management, etc)... and this in turn helps with happy tenants who will stay (reducing costly vacancies)... Best of Luck!

You could offer your tenants some up grades, washer dryer, microwave oven, new carpet, security safes, alarm service, inside improvements. increase rent as agreed for the improvements.

When tenants move out, move in and create a WOW factor, install lights in closets when door is open, upgrade kitchens and baths, spend money to thrill tenants......you will find that the present and future returns on your improvements should be great.

Charles Parrish

@Michael McCormack I like the way you're thinking! Yep, doing the basics is where you want to start, but you can go MUCH farther. You're rental can be operated in the classic mode or as a private dormitory, short stay /corporate housing. You can mix and match as well.

Then, if you're looking to grow your side/ancillary income, you should look at how your current tenants/clients are spending their discretionary and non-discretionary income. Compete for more of their budgets. Be strategic of course.

Beyond that consider transportation, power, financing, broadcasting, health and fitness, land use, hospitality, advertising, and storage ideas. There is no reason you can't do business with the neighbor that surround your rental.  Don't limit yourself.

Now before overwhelm sets in, let me tell you I'm netting around $1,750 per month in ancillary income (income above rents). That covers my $1,650 mortgage.

Think big and you can generate significant side income and max your profitability too.

Nothing kills cash flow faster than vacancies, both physical and economic. I work backwards from there ... what can I do to avoid and minimize vacancies? Buy and fix a property such that it will attract good, financially stable tenants. Turn the unit fast when it is vacant. Screen all applicants thoroughly. Stay on top of repairs and generally bend over backward to keep a good tenant happy. Etc.

There are other ways to increase cash flow, but they are second order in my opinion, so I tend to focus on the 1st order above to drive my investment decisions and process.

Respond quickly to maintenance issues.  Don't raise rents to above market levels to reduce turnovers.  Screen for the best applicants and keep them as long as you can. 

@Michael McCormack ,, if you are talking cashflow,,I am a big fan of government tenants. The first and most pressing issue a landlord needs to deal with when considering any rental income property is how is the venture going to be funded? I like section 8 tenants because it allows me to reverse engineer my whole investment. I start with the going market rents in the area I am looking at. Section 8 will have a table for your local area and where they payment standards fall, usually between 90% to 110% of going market rents. They in fact have people who sit in these bureaucracies who JOB it is to figure out what rental offers will be made to landlords. I met with the local head of my section 8 agency who does this job and I have her email in my favorites contact list.

Anyway, lets say you will get $1000 in rent for a single family home in your target area. Minus about 50% in costs(debt service,taxes,insurance,repairs) for a net cashflow of $500/month. For that much cashflow, I am looking at buying at $30or $40k, with another $15k in rehab for a total cost of $45k to $55k acquisition. Works the number in your area. it may not work if property values are sky high, but then I have found that very high end rentals can actually hurt you big time when there are big repairs.

My bottom line: I like doing the cashflow game with lower end rentals and guaranteed government rent. And I let my team handle it as I sure do NOT use a property manager. If you are adding a property manager to the mix you might as well add another 30% or more in downside risk to your monthly cashflow.

my two cents

All the best!

Faisal

@David Faulkner I agree with you about vacancies. I consider tenant rents to be the water in the soup. It absolutely necessary - however rents are typically not sufficient to be profitable.

I've had a lot of success with a vacancy reduction plan that starts as soon as I get a 30-day notice. The goal is to find a replacement tenant before the existing tenant moves. I haven't had a real vacancy since implementing this plan.

Faisal Sami you forgot to mention reserves.

Most DIY landlord fail to set money aside for reserves then get bit when it's time for a maintenance. Reserves must be subtracted from cash flow - otherwise we're deceiving ourselves.

This is why I stress ancillary income. It's nice to have an additional income stream to help fund reserves.  Unless your property is free and clear, the creating additional income streams is worth the effort.