I have said it before and I will say it again, positive cash flow is the most important thing to a buy and hold investor.
Without positive cash flow, your time as an active real estate investor will be limited. So why is your property not cash flowing?
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Here are 5 Thoughts On Why You’re Not Seeing Cash Flow
1. You Paid Too Much
In real estate, you make your money when you buy, not when you sell.
If you pay too much for a property you will be on a losing streak right from the get go. Paying too much is perhaps the number one reason properties do not cash flow. To avoid paying too much you really need to know and understand your market. Study it long and hard.
Look at dozens of properties before you buy. If you have already bought a property and are under water, you may want to seriously consider unloading it for a loss to stop the bleeding. Chalk it up to experience and move in.
2. Your Rents Are Under Market
Rents across the country have been going up, up, up.
Unfortunately, so has everything else such as taxes, utilities, insurance, and repair costs. Have your rents kept pace with these rising costs? If not, you may need to check to see if your rents are at current market rates.
Check local ads on Craigslist. Call nearby for rent signs and talk with other investors to determine the best market rents for your property.
Related: Is Now a Good Time to Raise Rents?
3. Your Turn-Over Is Too High
Tenant turn-over is a cash flow killer.
Long term stable tenants are a key to generating positive cash flow. To reduce turn-over, screen out frequent movers. Keep your rents in line with your local market or perhaps even a bit under market if you can.
Be attentive to tenant needs and requests. Keep your properties clean and maintained.
4. You Are Spending Too Much
Clean and properly maintained properties are a must.
But that does not mean you need to pay top dollar. Calling those service companies with the largest ads will likely end up costing you more than you need to spend.
Find and develop relationships with contractors and other service personnel that will work with investors and not charge premium (retail) rates. They can be hard to find but they are out there. Get referrals from your local REIA group or from other trusted contractors.
5. You Are Spending Too Little
Properties simply have to be maintained.
You cannot cut your way to profitability here. If you let your properties deteriorate and do not complete necessary repairs, your tenants will eventually get fed up and move.
You will have a difficult time attracting new tenants and those you do attract will not be the most desirable. Such a situation can easily send a property and a landlord in to an ever deepening downward spiral. Don’t let it start.
So remember, if you are looking for properties to buy and hold, positive cash flow is the most important thing. Purchase price is key, but how well you manage your properties and your expenses also play a role.
What else do you think is a crucial aspect of having consistent cash flow?
Be sure to leave your comments below!