10 Ways to Calculate Rental Property Cash Flow (VIDEO)
Rental property is a great way to cash flow every month. Gross cash flow is calculated in various ways, for example; rent, garage rentals, application fees, credit score checking fees, late fees, and other ways. This type of monthly income is consistent every month and if it’s calculated correctly the property owner can live job-free. Here are 10 different ways to figure out of your rental property is generating the correct amount of money every month.
1. Increase the monthly amount by offering rent credits toward the rental unit
This is hands down the best way to get the most cash flow out of your rental. There are several reasons for this, including; tenant-buyers typically pay a little more per month, you can increase the monthly amount by offering rent credits toward purchasing the home, they typically pay all utilities, they should take better care of the property, they might be responsible for some or all of the maintenance, and you should get a larger amount upfront so if they don’t buy it you have more money to fix tenant damages.
It is rare that a tenant-buyer actually purchases the home, so I don’t worry about it, but if your property is one that you would not be willing to sell, this is probably not the best strategy to use.
2. Rent to own
This was not mentioned above because it really deserves its own explanation, according to the Local Records Office. I have probably used this one strategy more than 50 times, with great success. When you rent a property on a rent-to-own, the tenant should put down some non-refundable option money to secure their right to buy the home. This could be based on a percent of the price or it could be a set dollar amount that you both agree to. I love to ask for more than I think I can get and get talked down. For example, I will let them know I am really hoping to get $10,000 for a specific house but have some flexibility with that.
If the tenant says they only have $4,000 to put down I might ask for $6,000 and agree to finance the other $2,000 interest-free. If we do that, I have them sign a separate note for $2,000 with no interest and payments of $200 a month until it is paid. When I do it this way, I increase my cash flow by $200. Mortgage companies love to see it done this way because it is easy to document cash they have into the deal that can be counted as a down payment.
4. Remove washers and dryers
I hate washers and dryers in my rentals. One of the first pieces of advice I gave to David Gomez of our assistant when he was getting started with his rentals was to deal with all the washers and dryers. These break down more than any other appliance and are not necessary or expected to be in a rental unit. If you have them in your unit there are a few things you can do.
- Take them out and sell them on Craigslist.
- You can give them to your tenant. This is what I do most of the time. I let the tenant know that the washer and dryer in there do not technically come with the unit.
- I can either come to get it or they can have it. If they take it, it is theirs and they can take it with them when they leave. Because it is theirs I do not want any calls if they stop working.
- You can rent them to your tenants to increase your cash flow.
5. Add rent to own appliances
A washer and dryer is one example of leasing a personal item to the tenant. You can actually take this much further. I have heard of people having a “menu” when they lease a place with pictures and prices to rent the tenant; TVs, stereos, window coverings, ceiling fans, furniture, and more. If the tenant chooses to lease something from the menu, you would need to go out and purchase the item and have them sign a separate lease. I would take the price it costs you to buy and divide that by 10 or 12 to come up with a rent amount. That way you break even in a year or less and everything above that is pure profit. You can even do a rent-to-own if you want.
6. Aditional charges for pets
I never really did this until my current leasing agent started doing it for me. You can get really creative with pets, and charge additional refundable or non-refundable deposits and additional rent each month. We just leased real small property to a family with a cat and got $50 more a month.
7. Transfer utilities
Travis is the king with this. He always transfers all the utilities including water to the tenant. In fact, he found a company that will take a multifamily unit with one city water meter and divides the bill between all the units by setting up separate meters for each unit. He is just starting this and there is an expense to get it going, but over time this should be very profitable for him. He agreed to be the guinea pig, so I am excited to see it work and then plan to implement this on my small multifamily units as well.
8. Month-to-month leases bring in more money
I love month-to-month leases because a month-to-month lease is a bigger benefit to the owner than it is to the renter, in most cases. One example of this is the ability to raise the rent whenever you want. Here is a great way to raise rents for your tenants. Let’s say for this example you want to raise the rent on a unit by $50 a month.
9. Raise rents
First, you need to write a letter to the tenant saying because costs have gone up you have found it necessary to raise rents. Give notice that you are raising rent by $100 a month. Finish the letter stating that you know that $100 is a pretty large jump and invite them to call if they feel it is too much or they cannot handle it.
By some miracle, I have found that about half of the tenants will just start paying you an extra $100 a month. Voila, you just got more than you expected. Some, however, will call and complain. When they do that, simply say they’re right; it is probably way too much. Tell them how much you value them as a resident of yours and want to work out something that is good for them. Ask them what a fair middle ground is.