4 Tips for Investors in Better Managing Cash Flow
Mixed-use Real Estate Investments in Houston
For residential real estate investors, effectively managing cash flow starts with setting reasonable expectations for expenses and accurately forecasting future performance. However, managing expenses (and properties in general) is no small task. Savvy investors are often looking for ways to improve their processes and operate their portfolio more efficiently. For example, experienced investors often focus on tenant communications and nurturing tenant relationships because renters have a direct impact on maintaining cash flow and achieving cash goals. Here are a few ways real estate investors can better manage cash flow:
1. Be Realistic
In order to maximize cash flow, being practical about the way they manage their properties is critical for any investor. One of the first major decisions investors are often faced with is whether they have the time and skill set to manage properties on their own. Investors should determine their scope and level of participation even before investing. Unfortunately, many investors have neglected to do so and find out the hard way. For the passive investor, it is difficult to manage properties outside their regular work hours and family commitments. It gets increasingly hard as they invest outside their local area of residence. There is no doubt that property management can be a full-time job. Landlords need to be responsive to tenants at all hours and keep track of a wide range of expenses and payments. They must also be available for showings around the clock or risk missing out on quality tenants and extend vacancies. Investors can hire professional property management companies to handle all aspects of the business, but they must also account for the reduction in cash flow, often by 8-10%, which many industry veterans factor into their investment decisions. Regardless of the choice between self-management or professional management, investors need to conduct the necessary research and weigh the different costs, benefits and timelines.
2. Leverage Technology
Once investors have determined what property management style is best suited for their assets, they should figure out what systems to implements to track their portfolio. Whether they are managing the properties themselves or using a third-party company, all investors should take advantage of emerging technologies in the real estate space. While most of these tools require monthly or property level fees, they simplify the manual tasks associated with property ownership and can lead to better speed to scale. For example, investment property tools can provide advanced insights for acquiring properties, expected renovation budgets, and can effectively alert landlords when payments are due. Major players in this space include Appfolio, which allows users to list vacancies to various rental sites, screen tenants, generate lease agreements, and collect rents all through its online system, and Yardi, which uses a cloud-based platform that provides real time analytics and provide an online platform for tenants to request work and pay rent, as well as other tools. These technological tools allow investors to track their properties anywhere on the globe and can automate many otherwise time-consuming tasks. They are intended to make life easier for landlords and streamline processes to keep both owners and tenants happy.
3. Focus on the Well
Rental income is the principal driver behind investment decisions in residential real estate; however, many property managers forget to protect the source of their revenue. Effectively screening potential tenants is a crucial practice that gives investors additional control over their income stream. There is no better friend to a property manager than a good tenant, which can be shockingly difficult to find in many instances. So, while new property management technology can streamline many of the processes, it cannot simply generate good tenants. Investors would be wise to take time and consider the type of renters that are best suitable for their property type, a process which can also save them money down the line. For example, college students as tenants are often better adopters of online rental platforms and communication systems, but are usually expected to cause higher costs in repairs and maintenance. Other things to consider include incentives for ideal clients – foregoing a couple weeks of rent payments to attract long-term tenants who will reduce turnover and lower upkeep costs.
4. Prepare for Capital Expenditures
Many landlords don’t accurately predict how much wear and tear that rental properties will see over its lifetime. Keeping reserves for capital expenditures (they will be undoubtedly necessary at some point) is a prudent practice to ensure that investors can quickly address issues that arise with the property in order to keep tenants happy. While a busted refrigerator may not break the bank, having funds set aside to repair faulty roofing and HVAC systems can really save investors on a rainy day or month. Stockpiling for expected maintenance and capital expenditures will also allow investors to accurately forecast what they can expect in portfolio revenue. For example, if a landlord’s properties are predominantly built more than 50-years ago, they should consider holding extra reserves as these units tend to require additional maintenance over time.
For many investors, real estate is uncharted territory. Unlike stocks and bonds traditionally considered “standard assets” real estate is an “alternative asset,”. But just because real estate is an unknown doesn’t mean that it should be avoided as an investment opportunity. When approached correctly, real estate can be a lucrative and reliable way to generate substantial income. We offer you the best plans, encourage you to ask for any of our investments.
Mixed-use Real Estate Investments in Houston.
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