We know there are both short-term and long-term concerns when it comes to being a rental property owner and real estate investing. After all, knowing that property would make you substantial income in five or ten years, assuming you get a great long-term renter, is one thing. However, being able to afford the upfront costs for things like upgrades to get the property into shape is another thing.
Cash flow, or how much money is coming in each month (versus how much you are spending), matters even if you have the savings to take a loss for a month or two here and there. Eldersburg property management companies know first-hand just how important it is to make sure my expenses are accurately budgeted and when determining "how much I can rent my house for."
Why Positive Cash Flow Benefits You
There will be times when a major rental property expense like a building renovation wipes out your cash reserves, and your business expenses versus income will be tight for a while. However, it is best to have a positive cash flow—keeping more revenue coming into the business than going out in costs and routine expenses—each month. Not only is it hard to dig out of a hole when you start down a path of negative cash flow for an investment property. It also can be expensive long-term since financing your negative cash flow can require you to invest less money into your property or a new investment.
Creating a sustainable real estate investment business requires that you have enough cash coming in to pay all your bills and contractors reliably.
What Is Your Cash Flow Now? A Calculation
If you haven't started calculating cash flow, there's no better time than the present. Begin, of course, with your income. With good reliable renters, it's pretty clear how much rent they deliver as your main form of income. If you charge for parking, laundry, or a flat rate for utilities you pay out of your own pocket, those income streams should be factored into your gross income as well.
Then calculate the expenses related to that property: from property taxes to maintenance cost, Eldersburg property management fees to landlord insurance premiums—make sure it is all there.
Finally, you'll also deduct any debts, like a mortgage payment, as well as a portion of your overall business expenses. If the resulting number is positive, congratulations: you've got positive cash flow! If it's negative, something needs to change, either a reduction in expenses or an increase in the rent.
However, keep in mind that if you have a small amount of positive cash flow, you may still need to make changes to reduce costs or increase rental income. a renter moving out early or missing a payment might be enough to push you into negative cash flow before you can get new renters into you rental properties.
Have Cash Flow Concerns About a Potential Property? Employ This Rule
When you're making decisions on your next rental property purchase, there is a valuable way to estimate its cash flow viability for your rental business quickly. While it doesn't work in every single housing market, many people use this rule to decide whether they are likely to make an income property profitable.
The 1% rule is the idea is that if you divide the purchase price of the property by 100, you should be able to charge that much (or more) in rent per month. So a $300,000 property should fetch at least a $3,000 rent per month. All else being equal, rental property owners have found that this ratio of property value to rental income makes for a good cash flow situation.
You'll probably want to talk to your Eldersburg property management company if you find a property that seems promising, but you aren't very familiar with rental rates in that area. They may have insight into whether there is a market for renting at the rate you'd need to generate ideal cash flow.
Eldersburg Property Management Knows How To Increase Rental Income and Cash Flow
The right Eldersburg property management company has helped countless property owners get cash flow back in order through various interventions. When asked, "how much can I rent my house for?" they bring plenty of data to the table for how to proceed in the future. Owners can opt to raise rent between rental cycles, for instance. The right property managers can help you do this strategically and in a way that doesn't present a problem with finding a great renter. They can also help you streamline expenses, taking advantage of their access to competitively-priced maintenance and repair professionals.
Once you're in a better place, cash flow-wise, you won't want to lose positive cash flow in the future. Luckily, rental property owners in Eldersburg benefit from the Renters Warehouse BW Metro Guaranteed Rent Program. This program helps you know you'll have the cash you need every month to keep the business moving forward, cutting a source of risk and stress for you. Please get to know the program and our property management services today!