As a real estate investor, you’re probably well aware that cash flow is essential. You want to earn a high return on your investment and consistent; positive cash flow is one necessary factor to experience such. Now, in calculating cash flow, you focus on factoring in things like property insurance, taxes, mortgage (if necessary), maintenance, and repairs for starters. These are the more common numbers people factor in when calculating estimated cash flow.
But what about the less obvious factors that could influence cash flow? The “cash flow killers”? Are you aware of them?
Here are some things to keep watch for regarding your investments and cash flow:
- The wrong type of insurance
Investment properties need a different kind of insurance policy than owner-occupied properties. If you’re not appropriately covered, you could end up losing a good bit of money when things like a natural disaster hits. Therefore, talk to a reputable insurance agent to learn what type of property insurance policy you need. You’ll want to be sure you’re protected against natural disasters like floods, hurricanes, tornadoes, wildfires, and so on.
- Irresponsible tenants
Bad or irresponsible tenants can easily be cash flow killers. Now, you might not be able to screen tenants perfectly, but there are some things you can do to lessen the odds of getting bad tenants. For example, do you run quality screens? Do you do a credit check? Check for criminal background? Evictions? Call references? Whether you manage your properties yourself or have a property manager, be sure you do all you can to use quality screening measures. There may be a small fee to pay for such, but it’s well worth it in the long run, potentially saving you a lot of money.
- Not accounting for vacancy rate
If you don’t add the vacancy rate in when crunching your numbers, this could hurt your cash flow. It’s great to be optimistic and think the unit will never be vacant, but you should prepare just in case it sits vacant for a month or two in between tenants.
- Bad property manager
If your property manager is not reliable, is rude, or just isn’t good at managing properties, it can hurt cash flow. Your tenants can become upset and end up not paying rent or moving out, and this can cause the cash to stop flowing. A shady property manager may also overcharge you for repairs, so that’s something to look out for as well. While we don’t recommend it, if you really want a property manager, screen potential property managers well and clearly define their responsibilities. Let them know that dependability and respect matter to you and that you won’t settle for anything less.
Cash flow matters and you want great cash flow, so certainly become adept at estimating potential cash flow and keep these “cash flow killers” in mind too. As you do, you’re likely to enjoy consistent cash flow month after month, year after year.