5 Tips for Increasing Rental Property Cash Flow - Part2
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We've all heard about cash flow. The term that is most-used when speaking of rental property profitability. Cash flow is basically the cash that rental properties generate from various sources. The level of cash flow essentially evaluates the wealth of the property owner because even if a property owner owns 100 properties, the properties are worthless unless they are generating excess cash flow (cash after all expenses). Because of the importance of cash flow, below are five tips for increasing cash flow from rental properties.
This list is Part 2 of a two part list
1.) Refinancing - Refinancing a property's loan can cut one of the biggest expenses of owning property; mortgage interest. If current interest rates for mortgages are lower than the interest rate on one's current mortgage, they can refinance it and get a lower interest rate. This in turn will lower the monthly mortgage payment and the lower the monthly payment the higher the monthly cash flow. Unfortunately, interest rates are rising quickly in the United States, so if one feels that they can still benefit from refinancing, they better hurry.
2.) The Option Lease - This is a rental lease that gives the tenant the option to purchase the property within a certain amount of time. For
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example, if the tenant usually pays $400.00 per month in rent, the landlord can offer the tenant an option lease for an extra $150.00 per month. This means that for the time period specified on the lease, the tenant has the option to buy the property from the property owner for a specified amount.
Most of the time, the tenant will not be able to get the down payment in the specified amount of time, meaning that they will not be able to exerciese the option. This means that the property owner keeps the property and increased their cash flow by $150.00 per month. A good way to draw a tenant into a lease option is to offer them an excellent deal on the property, but one must make sure that they don't get burnt (I apologize to all tenants out there. I swear I'm not a money-hungry slumlord, I just enjoy being creative with money).
3.) Create Pay Services - Instead of making their tenants go to the laundry mat, one can purchase a washer and dryer that take quarters to operate and place it in their property. Little pay services like these can be a great way to increase cash flow and get a nice ROI. Look into it, be creative, and watch the money grow!
4.) Property Improvements - Add wireless internet, laundry machines (free ones), allow pets, make off-street
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parking available, or build a patio onto the back of the property. Updates and repairs are excellent ways to increase cash flow and the resell value of the property. New carpet and blinds is often a very cheap way to increase cash flow using this tip.
5.) Pre-Lease the Property - If one knows that the current tenant is planning on leaving, begin looking for a new tenant. If a new tenant is found, then have them sign a lease before the current tenant ever leaves. This can greatly increase cash flow from reducing property vacancies to nothing. It cannot be stressed enough that property vacancies are a financial doom and should be avoided at ALL costs.
Cash flow is the result of many other rental property factors, but in the end cash flow must exist or the owner will eventually lose the property. The property owner must remember to keep a close eye on their cash flow and/or those that manage it for them. Getting sloppy and too busy to run the business aspects of an investment property can destroy an empire that surely took a plethora of time to build.
The author is the founder and owner of both ManageYourRentals.com and LandLordDocuments.com.
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