One of the biggest obstacles investors face is finding properties that cash flow. The solution is not to buy cheap properties or put more money down. There are better ways to create cash flow. Rich Danby from Rich Ottawa Investments Inc. outlines his five key strategies...
1. Start with you…
Before you buy more properties review your existing portfolio. There are likely many things you can do to save money and increase cash flow.
A. Clean house… Tenants will pay more for cleanliness.
B. Be aware of current market rents in the area and what other landlords are writing in their ads to attract tenants (padmapper.com).
C. Review your bills to see if there are any spikes or patterns. Compare against other properties in your portfolio.
D. Visit the property at least twice a year and do a thorough walk around with notepad in hand.
E. Maintenance today saves money tomorrow. Cash flow will suffer in the short-term, but real estate investing is a marathon, not a sprint.
F. Shop for better mortgage and insurance rates a few months before renewal.
G. Talk to experienced investors for advice and referrals to help you build your team and learn from their experiences.
2. Buy more units
Just like shopping at Bulk Barn buying properties with more units lowers the cost, compared to buying individually. Typically the more units you have the higher the potential for cash flow. Having only one roof, one furnace and one property to manage significantly decreases your expenses and lowers your risk. If you own a fourplex and one unit is vacant, you’re still collecting 75 per cent of the rent. If you’re not financially in a position to buy multiple units on your own you may want to consider finding an investment partner to help you fund the deal.
3. Create more units
Another popular strategy to create cash flow is adding secondary suites in single- family homes. For example, if an entire house rents for $1,600/month and you’re able to divide it into two apartments renting for $1,200 (upper unit) + $1,000 (lower unit) you’re now cash flowing an extra $600/month. I highly recommend working with the city to ensure you’re renovating the property legally. All it takes to get shut down is one complaint from a neighbour. Also keep in mind that every city has different rules. Make sure to obtain a professional opinion on the subject property prior to waiving conditions to ensure you can legally add a secondary suite.
4. Pick a different city
Would you continue to eat at the same restaurant if the prices were always going up? Some would if they really loved the food; while others would try the new place their friends have been raving about. The grass isn’t always greener on the other side, but it could be depending on where you live. If your monthly rental income isn’t enough to cover the expenses and you have to manage the property yourself, it may be time to consider a different city. Most people invest where they live because it’s familiar and they want to be able to get there quickly if there’s an issue. That’s totally understandable, but could be extremely limiting depending on market conditions in your area. There are many real estate professionals that can help you manage an out-of-town investment. In fact, with the right property you’ll have enough money to pay a property manager and still have cash flow left over for you.
5. Change strategies
If you’re not willing to change cities maybe it’s time to change strategies? A traditional rental may not be producing enough income to cash flow. Student rentals is a great way to increase monthly cash flow because you can charge more per room, although it’s still recommended to have everybody on the same lease. Adding Mom and Dad as guarantors is a great way to ensure the rent is paid every month, but expect a little extra wear and tear. Rent-to-Own (RTO) is another fantastic strategy to increase cash flow and help others live in their dream home today. It’s designed for people who are unable to secure a mortgage, but will be able to in the near future, typically one to three years. RTO is similar to leasing a car. You put down some money up front and have the “option” to buy the car in the future. The tenant pays market rent, but the cash flow is higher because the tenant is also saving additional money for the future down payment. That money goes directly to you to ensure the tenant will have enough money to buy the house at the end of the term. Basically, you’re collecting some of the profits along the way in the form of an “option credit” in the event that the tenant decides to buy the property.
Many investors are unsure of the real numbers are they should be calculating. To find out if your property is truly cash flowing send an email to firstname.lastname@example.org for a free property analyzer.
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