How to Build Consistent Cash Flow with Long-Term Rental Properties

Long-term rental investments are a tried-and-true strategy for investors looking to build a steady income generating real estate portfolio. In many cases, the rental revenue generated by a property covers the mortgage and any additional expenses, leaving a solid return for the owner. Finding success with these investments isn’t always straightforward, however. Just like with any other investment, both careful planning and sustained effort will be required to maximize your return. Continue reading as we cover some key strategies for building consistent cash flow with long-term rental property investments.

Why Long-Term Rentals Are a Reliable Source of Cash Flow

If there’s one thing that can be said about long-term rentals, it’s that they are one of the most stable sources of cash flow on the market. Unlike short-term rentals which require continual management of bookings, long-term leases provide predictable cash flow for a set period of time. There is also strong demand for rentals as younger generations are choosing to rent over owning real estate properties. Rental properties can even provide investors with additional returns over time through property appreciation. Plus, investors can make use of tax advantages such as deducting mortgage interest/operating costs to reduce their taxable income.

Steps to Start Investing in Long-Term Rental Properties

There are a few steps you can take to set yourself up for success with long-term rental investments:

• Start by having clearly defined goals for your property, whether it’s monthly income or long-term appreciation. Understanding your comfort level and risk tolerance with these investments will also help you make better decisions.
• Next, conduct thorough market research, including analyzing the trends and statistics for the market any potential property is located in. Areas with strong population growth, rental demand, and a growing job market are all prime locations for investing in.
• You will want secure financing before making a purchase so you can more accurately determine your total costs. After you’ve determined your total principal amount and interest rate, you can create a detailed budget that will tell you your estimated monthly return. Be sure to explore multiple lending options, including private loans from companies that operate in the real estate space.

How to Choose the Right Long-Term Rental Property

Before you go out and purchase your first rental property, you will first need to decide what type of property you’re looking for. Single-family homes are easier to manage, and are recommended if you’re just getting into real estate, but they don’t provide as good of a cap rate as larger, multifamily homes. As for the property itself, renters will prefer homes located in quiet areas with access to amenities such as good schools, shopping areas, and transportation options. Be sure to get a professional property inspection done before signing any paperwork, as this can save you from investing in a property with costly hidden issues, like flood or foundational damage.

Maximizing Cash Flow from Your Rental Property

You can ensure you’re getting the most from your rental property investment in a few ways. It’s important to do market research and look up comparable properties in the same area as yours, so that you can charge a competitive rate. You will also want to consider increasing rent over time to keep up with the overall inflation rate. However, you will need to be careful not increase the rates too much, and be sure to give your tenants ample notice of these increases. There are also some ways to minimize operational costs, such as conducting regular maintenance to prevent smaller issues from blowing up into bigger, more costlier repairs.

Minimizing vacancies is also important for improving your cash flow. Consider offering lease renewal incentives, such as rent discounts or small upgrades to your most loyal tenants. In the case there are vacancies, this can be perfect time to make larger renovations to these units to improve your overall rental income. Still, it’s important that you list vacant units quickly to avoid missing out on any potential income. You can utilize social media groups and other online platforms to help you connect with tenants faster.

Common Mistakes to Avoid with Long-Term Rental Investments

Here are some of most common mistakes to keep an eye out for with long-term rental investments:

• Failing to Screen Tenants: It’s important that you have a thorough process in place for screening and selecting tenants. Poor tenant selection often leads to missed payments, mishandling the property, or in the worst cases, a costly eviction process.
• Not Having a Detailed Lease Agreement: In a similar vein, you should create a comprehensive lease agreement that lists out all the expected duties of the tenant, as well as establishing your policies on late payments, security deposits, pets, and subletting.
• Overleveraging Your Investments: It’s also crucial that you don’t take out a loan for more than you can comfortably handle. This can cause a strain on your cash flow, especially if you run into issues with vacancies or maintenance and repair costs.

Tips for Scaling Your Rental Property Portfolio

We want to end with some key tips for how to scale your rental portfolio in the long-term. Equity is a powerful tool that can be leveraged to acquire new properties without having to dip into your own personal funds. The great thing about rental investments is that you build equity over time by paying off a mortgage, and it’s often funded by the rental payments you collect each month. To create a strong portfolio, you should consider diversifying into different real estate locations, or even property types, so you are not overexposed with any particular type of investment. Finally, consider partnering with a private lender to expedite your portfolio growth. Lenders that have experience in the real estate space understand the importance of speed, and can streamline the approval process to help you secure deals faster.

RCN Capital

The easiest way to save on rental property financing is to find a trusted lender that can get you the best leverages and rates. RCN Capital lends to real estate professionals, commercial contractors, developers & small business owners across the nation. We provide short-term fix & flip financing, long-term rental financing, and new construction financing for real estate investors. RCN Capital also has flexible and competitive loan options available. Are you looking to purchase or refinance an investment property?