Earning positive cash flow is a goal for most real estate investors. As a rental property owner, you’re in the strange position of counting on tenants to keep your cash flow consistent. You can’t earn any money without a tenant in place. Late payments will impact cash flow. Large maintenance expenses will also decrease what you earn month by month.
Managing your cash flow is an important part of your investment plan. Here’s how you can have a better, and more profitable, investment experience when you own Idaho Falls rental properties.
Identify and Manage Cash Flow for Idaho Falls Investments
Cash flow is easily calculated. It’s simply the difference between your rental property income and your rental property expenses. Those expenses need to include your mortgage, if you have one. Negative cash flow occurs when the expenses and financing costs are more than the rent you’re bringing in. Everyone prefers positive cash flow of course, but sometimes you’ll have a vacant month or a longer turnover period than you expected. This can lead to negative cash flow.
Here’s what you’ll need to put a cash flow management system in place.
Pay Attention to Your Accounting Statements
You should be keeping careful track of your income and expenses, generating accounting statements and financial reports that show you exactly where you stand with each property you own. This allows you to forecast your cash flow and anticipate what you’ll earn monthly, quarterly, annually, and even over the life of your investment.
You need good data to effectively analyze and forecast. If you’re not working with an Idaho Falls property management company, make sure you have the software and the tools that can help you.
Keep Your Idaho Falls Rental Expenses Down
Keeping costs to a minimum will help you manage your cash flow better. The two largest variable expenses are going to be vacancy and maintenance.
It’s rare that a property is 100 percent occupied. Budget for the few weeks or even the month or two every year that you are turning over your property or looking for a new tenant. Don’t forget that maintenance emergencies are more expensive than preventative maintenance and more difficult to budget for.
Good tenant retention plans and routine maintenance responses can help you minimize these costs and keep your cash flow strong.
Enforce Consistent Rent Collection Policies
Your lease agreement needs to include a detailed rent collection policy.
Make sure your tenants know how much is due, when it’s due, and how you expect the rent to be paid. Include late fees and enforce those late fees when rent doesn’t come in on time. In some cases, you’ll need to negotiate late payments with tenants.
You may agree to a payment arrangement or accept a partial payment to avoid escalating a potential conflict or eviction. But, always be prepared to collect those late fees, serve the proper notices, and take the next steps if tenants are slow to pay. Evictions will always hurt your cash flow and you want to mitigate the risk as much as possible.
Keep a Reserve for Idaho Falls Rental Expenses
Set up a reserve account specifically for use as a cash reserve for when cash flow is down. Drawing on this will help you continue to operate efficiently without the threat of late payments and vacancies severely damaging your business. It can also help when unexpected repairs and replacements are needed.
You need good information and consistent systems to effectively manage your cash flow. If you’d like some professional help from an Idaho Falls property management expert, we’re ready to help. Contact us at Jacob Grant Property Management.
