What’s the Secret to Increasing Cash Flow on a Rental Property?

What’s the Secret to Increasing Cash Flow on a Rental Property?

by September 12, 2022

If you own a rental property, your number-one goal is profitability. And if you want to increase your profits and bolster your ROI, you should look for ways to boost cash flow.

If you’re not sure where to begin, this article has a few things you probably need to know.

You Make Your Money When You Buy

Before we dig into ways to increase cash flow on a rental property, let’s be clear about one thing: You make your money when you buy. In other words, if you purchase the wrong property at the wrong price point, you’ll struggle to generate an acceptable ROI no matter what happens.

But if you bought a suitable property at the appropriate price, the profits should come easily. Buying rental properties requires a certain level of patience. You can’t get emotional and settle for what’s on the market just because you wanted to find something.

Investing in a rental property should be a fairly objective pursuit that’s based on math. If the numbers work, go for it. If they don’t, move on.

propert investment

Photo by MOHD AZRIN on Unsplash

Five Tips for Better Cash Flow

Although it’s true that you make nearly all your money during the initial purchase, there are ways to increase cash flow thereafter and turn a good investment into a great one. Here are some suggestions for doing just that.

1. Find Better Tenants

If you have bad tenants in your properties, healthy cash flow is almost impossible. Late rent payments and high turnover constrict cash flow and make it challenging to reach your target ROI.

So the first suggestion is to find better tenants. If you’re unclear on how to do this – or haven’t had good luck in the past – hire a property manager that performs tenant screening services.

2. Bring Your Rent Up to Market Rate

If you’ve had a tenant in your property for a couple of years, it’s possible your rent is below the going market rate. Next time there’s turnover, make sure you bring your rent back into alignment with the neighborhood. This can provide an instant jolt of extra cash.

If you have a long-term tenant in your property, you’ll have to be a little more diplomatic. Don’t increase the rate too much at any one time. Not only is this illegal, but it could inspire your good tenant to move out.

3. Renovate the Property

Rental rates are based on several factors, including location, the number of bedrooms, and overall design and amenities. You can’t do much about the location or number of bedrooms, obviously, but you can make renovations that enhance the overall appeal of the property. Something as simple as updating the kitchen, refinishing the floors, or adding some outdoor living space can justify a higher rental rate.

4. Add New Revenue Sources

Look for opportunities to add new revenue sources whenever and wherever you can. Depending on the property, this may include any or all of the following: renting out parking spaces; renting out storage space; or adding a coin-operated washer and dryer.

The great thing about new revenue sources is that they diversify your income. Even if there’s a 30-day period when you don’t have a tenant, you can still generate income from renting out parking spots or storage space to someone else.

5. Sell and Buy Another Property

It’s possible you bought the wrong property to begin with. If that’s the case, you’re going to have trouble generating a positive cash flow no matter what.

At this point, the best option might be to unload the property and use the proceeds to find an investment that offers better numbers. This isn’t always an option, but in a market like the current one, in which most real estate has appreciated substantially over the past decade, this is a good time to cash in the equity and redistribute it to other real estate investments via a 1031 exchange.

Put This All Together

It might not sound like much, but increasing cash flow by $100 or $200 a month can mean the difference between an average investment and a great one. Multiply these gains across multiple properties in your portfolio and you’re looking at tens of thousands of dollars in additional revenue over several years.

You won’t be able to implement every one of these tips with every property, but start with the lowest-hanging fruit. Look for one or two simple ways to increase cash flow and go from there!


Featured image credit: Pexels