Maximizing Rental Property Cash Flow

Investing in rental property involves many hopes—for rising rents, a profit at resale. But one inescapable reality of rental property is cash flow. When cash flow is good, many other problems are avoided or minimized. When cash flow is inadequate, you have a problem. 

Formulas for calculating cash flow are easy to find so we will not repeat them. But a more complex, nuanced issue is how to increase cash flow. That involves three elements: initial investment, ongoing expenses, and ongoing income.. 

Initial investment

 Potential cash flow should be estimated with care, using the most reliable possible figures, before you buy a rental property. That involves making the cash-flow calculation based on some estimates and guesses—such as how easy it will be to rent, what rents will be, what periods of vacancy might be unavoidable. 

Making a larger down payment and taking a smaller mortgage will increase future cash flow, of course, but not cash return on cash invested—an important consideration. Again, keeping the monthly mortgage payment lower by taking a smaller loan, for a longer term, at a lower interest rate increases cash flow, but, again, has implications for the long run. 

Operating expenses

 The chief operating expenses are payment of mortgage interest and principal, which is set at the time of purchase. But if the rental property is owned for a considerable period, it might be possible to refinance at lower interest and reduce monthly payments. That translates into long-term higher monthly cash flow.

 Insurance can be a significant operating expense. Seeking the best deal is a step toward long-term improved cash flow. And periodically checking for availability of a better rate makes sense.

 Less regular and predictable operating expenses are management, maintenance, repairs, and services. A landlord who takes on those tasks earns a higher cash flow by reducing outgo. It is a choice every landlord makes.

 Delaying or skimping on maintenance can be tempting because it increases present cash flow, but it can make tomorrow's costs higher as delayed maintenance leads to major problems.

Heat can be a significant expense. If instead of including it in the rent, the tenant pays it, the tenant has the incentive to conserve fuel and complaints about too little heat are avoided.

 Income

 The third element relevant to cash flow is rental income. At the outset, when considering the purchase of the property, the history of rental income is known. Prompt rental of the property with as little time vacant as possible—consistent with getting the highest realistic rent—has a major impact on cash flow. A unit vacant for a month has lost eight percent (1/12) of annual income. In a market where rents are not rising, a longer lease can avoid vacancies. So can a prompt, effective search for a new tenant when a current tenant gives notice. 

A final consideration is taxes. Tax planning and good record keeping, as the basis for achieving the lowest tax possible, boost cash flow. 

In conclusion, it is important to realize that getting a good purchase price and the best mortgage terms sets favorable overall parameters of cash flow. Management of expenses and income in the ways we have discussed can help to ensure that the expected cash flow materializes. 

Leaf Management & Funding rehabilitates houses to beautify neighborhoods and resells or rents them. The company also provides capital to those who wish to take on the same challenge of purchasing houses in need of serious repairs and investing in creating homes livable and attractive for future inhabitants.

Best Flooring Options for Your Rental Property

As you consider flooring options for your property investment, you're probably trying to strike the right balance between competing needs. You want your flooring option to fit your renovation budget, be durable, and be practical for your type of rental property. Of course, the floor has to look good to be appealing to tenants. Fortunately, these three flooring options are well-suited to your needs.

Carpet

If you're renovating a multi-unit property, carpet may be the best flooring option for your property investment. Carpet reduces noise between rental units. In addition to being inexpensive, carpet comes in an attractive variety of materials and colors. Nylon carpet is more durable than other carpet fibers and costs $10 to $45 per square yard. 

Luxury Vinyl

Valued by landlords for durability, luxury vinyl can be purchased as planks or tiles. It's not the same product as cheap vinyl tiles or sheets. Luxury vinyl has an attractive appearance. It's made to mimic the look of wood or stone. Luxury vinyl has an affordable cost of $2.5 to $5 per square foot.  Also, luxury vinyl is water-resistant. You may want to install it in the kitchen and bathroom if you're carpeting the rest of the unit. For single-family homes, luxury vinyl is a good choice for the entire property. One type of luxury vinyl clicks together and floats over the subfloor or existing floor. The other kind of luxury vinyl glues on. The biggest drawback is luxury vinyl doesn't muffle sound as well as carpet. However, thicker luxury vinyl (at least 3 mm) does provide some sound absorption. 

Laminate

This very budget-friendly flooring option ($0.70 - $2.00 per square foot) is made to look like wood, stone, or tile. That makes laminate popular with tenants. It can be installed as a floating floor over an existing one. Laminate is extremely durable and is an excellent choice for bedrooms and living areas. Due to a lack of water resistance, you'll need a different flooring option for the kitchen and bathroom of your property investment. 

Rental Property Yard Management

Yards in the Greater Boston area are beginning to green-up, now. They also are entering the season when regular care matters most.

Landlords understand that the yard is essential to a rental property's curbside appeal. But it also is a long-term investment. Beautiful yards can require years to come fully into their own. It makes sense to maintain them rather than repair them when the damage has been done.

Mostly, caring for the grounds is a landlord's responsibility. Yes, tenants may take on the job, for a consideration—or even because they love gardening. But that does not relieve the landlord of final responsibility.

The first step is not working on the yard. It is making an annual schedule of the care needed. State-of-the-art lawn care involves seasonal fertilizing, for example—usually late fall, early spring, and summer. In each case, the fertilizer formula is different, of course.

Then, schedule two annual examinations for problems. That could mean pests like moles and voles, invasive weeds such as dandelions, erosion, or build up of thatch. Most of these problems are known to landlords, but the point is to schedule them and stop worrying about them.

Then, there is mowing. In general, the less you frequently you mow, consistent with esthetics, the better for your grass. Once every two weeks at the height of summer might be needed.

And, of course, there is watering. In a way, regular and adequate watering is a matter of life and death to a lawn. It can pay to get that hassle out of the way by installing an automatic sprinkler system. The system can be set for any schedule—days of the week, times, duration. Schedule checking the system and turning it on for late spring, then checking and turning it off in early fall. In New England, mostly sprinkler systems get "blown out" when they are turned off in the fall.

So how to get all this done? Some landlords do it themselves and even like it. They get to check not only the lawn but the condition of the house at regular intervals. But if rental properties aren't your "job," then taking on lawn care, especially if you have more than one property, is asking a lot of yourself.

Once you have a definite list of maintenance steps, you are in a much better position to get a firm estimate from a landscaping company. You know how many days are involved, what equipment, and what supplies. With a known annual cost in mind, you can adjust the rent accordingly.

It is worthwhile, by the way, to look at "sole entrepreneurs" (a.k.a., handymen and ambitious high-school/college kids) as alternatives to a landscaping firm. You know the drill: no overhead, lower costs, lower prices. The "added" cost to you, however, is finding the right person instead of falling back on the professionalism of a landscaping firm.

In the longer run, a good schedule, well implemented, is like all on-time maintenance: cheaper in the long run than deferred maintenance and catch-up.

Time to make that schedule.

DIY Renovations for Your Home

Updating your home doesn’t have to be expensive. Refreshing your space can be fast, easy, and cheap if you’re willing to tackle a few do-it-yourself projects. Focusing on the kitchen, the bathroom, and the entryway, typically the most heavily used areas of the home, provides the most impact.

IN THE KITCHEN

Backsplash. Installing a backsplash gives your kitchen an instant new look. Beadboard, tin tiles, wallpaper, and peel-and-stick tiles are inexpensive materials for your new backsplash. For kitchens that have an existing backsplash, paint it. Your painted backsplash doesn’t have to be a solid color. A pattern or custom design can be created with stencils or free-hand.

Cabinets. Painting cabinets and installing new hardware give kitchen cabinets new life. Replacing the cabinet doors is another option. New doors cost more than paint and hardware, however, they’re much cheaper than buying new cabinets.

IN THE BATHROOM

Walls. Crown molding tends to have a dramatic visual impact in bathrooms due to the relatively small space. Bathroom walls don’t have to be painted white to make the bathroom feel larger. Soft yellow, pale gray, and pale blue have a similar effect.

Faucets. Aesthetics aren’t the only consideration when you’re replacing your bathroom faucets. Motion-activated operation, anti-scalding features, and sanitizing technology are a sample of the features available on today’s faucets. They also have legally mandated water conservation technology. Replacing a decades-old faucet could result in a lower water bill.

AT THE ENTRYWAY

Door. An easy update for your front door is to paint it in a color that contrasts the home’s exterior. Add drama by replacing a traditional door knocker with one in an unusual shape such as a medieval lion head or a ladybug. A worn doorknob could be changed out for a new one.

Porch. Putting down a monogrammed welcome mat with the first letter of your last name adds class. So does a potted sentry plant at both sides of the front door. Help visitors locate your home by replacing worn house numbers. Consider adding porch seating to extend your living space.