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In real estate investment, cash flow corresponds to the amount of money you have left over after deducting all the expenses from your income each month. In concrete terms, these different expenses include the monthly payments, the taxes, the insurance costs, the management fees and all the other charges related to your property. The income is mainly made up of rent and rebilled charges. Depending on the case, the cash flow can be negative, zero or positive.
When you are aiming to generate money from your real estate investments beyond the assets that you accumulate, you should aim for a positive cash flow. A positive cash flow will allow you to accumulate liquidity in order to continue investing. Earning money from your real estate properties goes beyond acquisition, but it requires a strategic vision to enable you to optimize your investments. To achieve this, there are several techniques you can use.
1. Buying at a low price
The price of the property is an important variable for determining the profitability of your project. The lower the price, the less you will pay in credit. It is, therefore, important to negotiate the price of your property as soon as you buy it. Always keep in mind that you earn money at the time of purchase but not when you resell your property. Many investors tell themselves that in 10 years, the property they have acquired will be worth this or that amount, and they do not think about negotiating its price.
However, no one can be sure of what will happen in 10 years in the property market. The negotiation should take place at the time of the purchase, before signing. To determine the correct price of a property, find out the market price, and negotiate below that price. At the very least, you will get your property at the market price. Note that the sellers usually expect a negotiation, and that they leave a margin by announcing a higher price. Saving even $1,000 on the advertised price can have an impact on the cash flow of your real estate project.
2. Negotiating the terms of the loan
The monthly payments are among the highest expenses. By negotiating the terms of your real estate loan, you can get better loan conditions, and you can also reduce the expenses incurred by the repayments. Some elements, such as the loan rate, the loan insurance rate, the application fees and the early repayment penalties, can be negotiated with your banker. If the borrowing rates fall, it is also possible to refinance your loan. This technique allows you to obtain a lower rate than your current rate and reduce your monthly payments.
3. Increasing the rent
Increasing the rent allows you to increase your income. However, this increase must be reasonable in order to avoid rental vacancies. Staying within the market prices is essential. There are several strategies which you can use to increase the rent of your property. The first strategy is to improve the comfort of your property through small-scale renovation work, such as the decoration of some rooms or the installation of equipment, like an intercom or a security system.
There is also the option of investing in furniture and moving to a furnished rental property, taking into account the tax arrangements that apply, depending on the region you are in. A furnished property is generally more expensive than an unfurnished one. In the same way, the seasonal rentals like Airbnb are generally more profitable than the traditional rentals. For better profitability, it is possible to mix these different strategies.
4. Creating other sources of incomes
Apart from renting out your property, you can create other activities in order to increase your income. For example, you can build laundry facilities in your property, a bicycle storage area or a wine cellar. These various amenities offer an additional comfort to the tenants of your property, and at the same time, they allow you to generate more income.
5. Reducing the costs
This technique allows you to reduce your expenses. To do this, it is necessary to identify the highest expenditure items and to reduce them. You can take action on the rental charges that are not billed back to the tenant. This could be the heating, the electricity or the internet. It is also important to compare the prices when you are choosing a craftsman for repairs, as the expenses caused by the work affect the amount of your cash flow. If you have a condominium, you should also be vigilant about condominium fees, which can increase.
6. Avoiding the turnovers
Rental vacancy has a direct impact on the cash flow of your property, as it considerably reduces your incomes. In addition to that, each time a tenant leaves the property you are renting, you have to plan for some repair and renovation costs, which will put a strain on your cash flow. So, the idea is to retain the quality tenants who occupy your property in order to maintain a constant level of income.
To do this, you should rely on a high-quality service in order to better position yourself in the market. This is manifested in the use of quality and durable materials in order to ensure comfort of the tenants or through the maintenance of a good relationship with those tenants. Always keep in mind that when the tenants feel special and properly welcomed, they are more likely to stay in the property.