LANDLORDS AS BUSINESS OWNERS
Managing Your Business in Inflationary Times
(Second in a Series of 2 Articles)
In the first in this series of articles, I presented a profile of the current inflationary business environment and what that means for you to succeed in managing your residential rental investment as a business … regardless of the extent of your holdings. The primary takeaway is to recognize that “cash is king”.
Your focus must be to manage all elements that determine whether you will enjoy a positive monthly cash flow …. or, suffer an outflow of funds to cover insufficient net rental income. Certainly, you want to harness the power of positive cash flow. In simple terms, you want to bring in more money than you spend each month.
In this follow-on piece, I share 5 proven tips to enhance your positive cash flow.
Enhance Your Positive Cash Flow …5 Tips for Success
- Be Alert to Rent Pricing & Management - Set Fair Market Rents
Your rental pricing considerations and analysis are essentially the same in deciding a first-year rent as well as increases over time. Be alert to the current rental market in your area. The law of supply and demand is very much a reality when it comes to pricing of rental units.Renters drive the demand side of the equation. Landlords create the supply.
So, do your homework. Become expert in competitive rental comps and trends. Some questions to start your research:
• What are current vacancy rates and demand for rental units?
• How do your current rents compare to similar properties?
• If your rents are generally higher, does your property include amenities that justify the difference?
Increases in rent over time are essential for you, the landlord, to keep pace with inflation as well as upticks in maintenance, utilities and other operating costs. Without that option, your business is likely to become a losing proposition. You need to deliver value to your tenants while realizing a fair return on your asset … both in positive cash flow and appreciation of your property.
Take away the “surprise” factor of rent increases. Regular, modest raises in rent are more easily digested by tenants than one massive increase after none for over a year or longer. Most people are aware that cost of living increases is a fact of life. Additionally, include a rent escalation clause in your lease agreement that specifies how often and by how much rents may be raised.
- Attract and Maintain Quality Tenants – Objective: Reduce Turnover & Vacancies
Note: Vacancy and tenant turnover are the two major cash flow thieves of residential landlords.
Vacancies are the number one cause of cash-flow hemorrhaging! Each month your rental is vacant means your expenses are not offset by rental revenue. Result: negative cash-flow.
Tenant Turnovers run a close second to the financial scourge of vacancies. Assuming your rent is consistent with the market dynamics, vacancies and turnovers will be greatly reduced by delivering responsive maintenance. Emphasize and demonstrate efficient maintenance as a genuine “value-add” for desirable renters to renew their lease plus encourage prospective tenants to perceive your rental to be attractive.
Plan and budget for property maintenance costs and provide quick-to-respond service to renters in their time of need. Contrast this management tactic to the cost of advertising, application process, background checks … and the potential of suffering months of no rent.
- Rent Receipt Management
Be diligent and consistent in insisting on tenant compliance with rent-due-dates. Your cash flow is severely impacted when a tenant does not pay in full ... or worse, misses a payment. Your expenses continue so proactively maintain and demand adherence to your rental protocols.
- Accounts Payable Management
You incur periodic invoiced expenses. Certainly, maintain good relations with your vendors of choice. That said, delay making payments until close to the “pay-by” due date. The longer the repayment period, the more you will repay with discounted inflationary dollars.
- Be Cost Conscious
As discussed above, expenses are the limiting factor in maintaining positive cash flow. Periodically review your recurring expenses and assess the potential for less costly alternatives. Utilities, landscaping, contractors, insurance, property management, advertising media and others are all candidates for analysis.
And be sure to include your investment of money and time on do-it-yourself projects you implement. Perhaps the highest and best use of your efforts is the DIY baton passed to professionals. You may discover that hiring a property manager is worth the cost … especially when it means you don’t have to deal with responsibilities like collecting rent, marketing available units, screening potential tenants, and overseeing repairs and maintenance. Use your time and energy to grow your rental property business.
Be alert to current mortgage interest rates. If you see rates falling, you may be able to refinance …with the dual benefits of lower monthly mortgage payments, and accelerated cash flow.
Finally, consider purchasing necessary items now to avoid higher inflation-driven prices in the future.
At KRS Holdings, we stand by our core principles: Successful property management is based on simple math: Add value to your assets, subtract unnecessary expenses.
Give us a call or drop an email. We’ll respond promptly to relieve
your stress and help you evaluate your property management
options plus maximize your rental property positive cash flow.