There’s nothing more frustrating than trying to generate cash flow when your cash won’t flow.
In markets all over the country, property prices are increasing at a speed that’s outpacing rents. And as that gap gets narrower, you’ll find yourself frustrated – frustrated at the amount of money you now have to put down just to generate some positive cash flow. Even if you did put enough money down, it would kill the whole return rate.
You could invest in a different market, but that’s a daunting, scary idea. You’d have to relocate your entire family and start your entire business over again in a brand new place
So what are your options? Terrible returns rates or moving to a whole new market?
There’s a third option. It’s playing this cash flow game the right way.
If you play correctly, opportunities will appear where there seemingly weren’t any before.
You’ll put minimal money down and generate a solid cash flow with a higher ROI.
In short, your money will work harder for you than you do for it.
Best of all, you’ll sleep better at night, knowing that your investments are within driving distance. You’ll have peace of mind knowing that you’re still on track to exit the rat race, just like you planned.
5 Strategies for Maximizing Cash Flow From Your Rentals
Today, I have five hot strategies to share with you to maximize cash flow from your rentals.
…But First, Let’s Put Cash Flow in Perspective
Cash flow is when the income from a property exceeds the expenses it costs to keep the property (taxes, insurance, maintenance, vacancy, property management, major repairs, etc.).
But never lose sight of this: Cash flow is just one of four profit centers of real estate, and it’s typically not the profit center that creates your wealth.
Your wealth will come from amortization, depreciation, and appreciation.
If your cash flow is a little negative or a little positive, remember – you have these other three profit centers. If you can hold onto those properties responsibly and have the reserves or income from other sources to do it, you’re still moving forward.
All that said, I do not recommend hold a property that negatively cash flows. BUT, if you do opt for it, I won’t say that you’re wrong or making a bad investment… because of those other three profit centers. Historically speaking, you’ll be right every time if you manage to pull through those situations.
Now, let’s talk about the cash flow specifically because that’s what will set you free. Cash flow will replace your job’s income and allow you to enjoy life right now while you’re young enough to enjoy it.
Strategy #1: Cutting Costs
There are two ways to increase cash flow: increase the income or decrease the expenses.
If you want to focus on the “decreasing expenses” half, ask yourself the following questions:
- Can I cut down on maintenance costs?
- Can I cut down on property management expenses?
- Can I decrease my utility bill?
- Can I refinance and get a lower mortgage rate on the property?
- Can I refinance the private money or seller’s money that I’m borrowing?
- Can I pay this off and refinance with some other source?
The rest of these strategies will acknowledge the “increasing income” half of the equation.
Strategy #2: Changing the Use
The second strategy is changing the use of the property so that it generates more income.
When you hear “income property,” you probably immediately think of tenants – people who will come in and rent the space from you to use as their home.
But there are many more ways that properties can create income. Not all of these will be a fit every time, but keep yours eyes and ears open. If one of these does fit, it could be a game-changer for your property.
In many states, you now have the option to turn a regular residence into a grow house. Whether you’re for or against marijuana usage, it is a great potential way to increase your income from a property. Purchasing a property and getting it all coded with the electricity necessary to run a grow house could have huge appeal to a grower.
(If you don’t live in a legalized state, this might sound a little crazy, but for those of you who do, you may have just had a light bulb go off in your head and said, “Aha!”)
Vacation rentals are another great changed property use that has become very popular. Inside of the investing space, it’s getting more and more popular by the day.
These are short-term rentals. You’re renting it out by the day, not the month. If you live in an area near an airport, a downtown area, or tourist attractions, this is a very viable alternative.
I personally haven’t gotten into the hospitality business myself because it looks like quite a bit of work, but I still see the income. The numbers are very attractive – per day, it’s about 10% of what it would cost for the month. So if a house rented for $2,000 per month, you could probably get around $200 per day as an Airbnb rental. Thus, you’d only have to rent it out for 10 days a month to be where you would if it were a long-term rental. Then, every day over 10 would be like a profit – or at least more than you made if it was just a regular rental!
(These numbers are just the rule of thumb. It might be different in your area, but in general, the numbers look very good for vacation rentals.)
Another use for properties is daycare centers.
Here in Southern California, you see them all over. People can go get their daycare license and turn their house into a daycare center.
If you took a house in a nice neighborhood and turned it into a daycare – hooking it up with all the amenities and everything it needs to be child safe – it might be something a business would rent out.
Office Spaces, Halfway Houses, etc.
Speaking of business, you could also turn the property into an office space, a halfway house, or anything else along those lines.
Strategy #3: Seller Finance
Another option is to sell the property with seller financing. This way, you’d be holding the note on the property instead of the property itself.
If you don’t want the cash flow to end, amortize it over 40 or 50 years. That way, the cash flow never ends. The person would never pay it off if they didn’t have it.
But if you did, you could sell it at a premium because you’re offering seller financing. You could lock in your profit.
If you paid $100,000 for the property, even if it was worth that, you could sell it for $110-120,000 with seller financing. People will pay that for the convenience. They’ll give you $10-20,000 down, and they’ll be happy to amortize it over the next 30-50 years.
Strategy #4: Add Conveniences
You can also add conveniences and charge a premium for them, such as:
- Utilities (pay for them yourself and charge a markup)
- High speed internet (they pay for utilities, but you add a premium for this)
- Dish service/cable network
- Cleaning services
Don’t take a pet deposit… because you might have to give that sucker back.
Instead, charge pet rent. Let someone move in with their two dalmatians for $50 each. There’s an extra $100 in pet rent, and that comes in every single month as long as they live there. Most people with pets will stay a long time, too, because sometimes it’s difficult to find a rental that will accept pets.
This little shift can kick your ROI up two, three, or four percentage points. It makes a big impact.
Strategy #5: Fractionalizing
I don’t even know if this is the right word to use, but what I mean is cutting up your property into fractions and renting out the pieces.
You can sell extra storage space. If you have a big lot, you can put storage units on it and sell it to somebody else, rent it to somebody else, or rent it out and then sell it at a premium to the tenant for storage.
If you have additional parking on your property, you can sell the spaces, especially if the lot is near an event center or on a street of apartment buildings.
There’s lots of this here in Los Angeles. Most apartment dwellers either rely solely on street parking or have more cars than their lot allows. Plus, everyone has to move their car once a week for street sweeping. Over a year, they’re jacked up the price of parking tickets to the $35-55 range. That adds up to an extra $300-400 per year in penalties, along with the inconvenience of looking for a parking spot every time they come home.
So selling parking spaces is a very viable solution in higher-priced areas, especially in the densely populated regions.
If you’re near a college, you can turn your property into student housing and rent out the rooms individually.
For example, if a four-bedroom house rents for $2,000, you could rent each room out for $700. Now, you’ve gone from $2,000 per month to $2,800 per month. You might have a little more maintenance to do, but you could combat this with higher deposits or doing a better job screening your tenants, and your cash flow will increase significantly.
The Strategies Are Endless
This is by no means a comprehensive list of all the ways you could maximize your cash flow from rentals. You could also put a billboard on the property or on the house itself. In some cases, you could rent out for cell towers.
And, of course, you can always invest somewhere else without moving. You can leverage someone else’s system and resources to mitigate your risk of investing remotely.
Any way you cut it, you have to go for cash flow.
You have to make it happen.
Don’t throw your hands up in the air because it’s difficult in your area. Remember, it’s often not a money problem – it’s an IDEA problem. And hopefully one (or many!) of these ideas has inspired you.
Get Even More Ideas!
This is something I’m going to illustrate at Epic Intensive: Cash Flow Conclave – how much faster it is to reach your goals of financial freedom with cash flow. I have a model to show you how streams of income can build and compound over time, and it’s going to make a believer out of everyone in the room. No one in their right mind will walk out of there and flip another property. It’s that compelling.
The strategies I shared here are just the tip of the iceberg. If you haven’t yet, go reserve your tickets now at EpicIntensive.com.