Maximizing Cash Flow: 6 Tips Brokers Can Share with Their Rental Investor Clients

Cash flow is king when it comes to rental property investments. From “Rich Dad Poor Dad” to your local mom and pop investors, this simple metric is one of the best ways to determine how profitable a property is. For brokers and wholesale partners, learning the ins-and-outs of maximizing cash flow is also incredibly useful, as your expertise will help your clients get the most out of their investments.

Want to learn more? Read on for 6 tips you can share with your rental investor clients to help them maximize cash flow.

Understanding the Importance of Cash Flow for Rental Properties

Cash flow is calculated with a relatively simple formula: take your monthly earnings from a property and subtract all related monthly expenses. What’s left over is your cash flow, or the net earnings received from a property each month. Positive cash flow is essentially what goes into an owner’s pocket each month once all things are considered. Maximizing this is key as it helps investors build wealth over time, allowing them to move on to other projects sooner, or just spend the earnings however they please. There are a few ways to improve the cash flow on a property, but they almost always involve one of two things: boosting income and reducing expenses.

#1: Financing Strategies to Improve Rental Cash Flow

If your client owns a rental property and wants to improve its cash flow, you can start by taking a look at their financing structure. There are a few different options owners can choose from when financing a rental property, such as conventional mortgages, ARMs, and DSCR loans from private lenders. It is important to take time to compare these options, that way you can help them choose a program that will save them the most money in the long run. Refinancing can also be a smart move, especially if it means securing a lower interest rate. Regardless of which type of loan they choose, your client needs to understand the balancing act that goes on with regard to LTV ratios, and how a higher down-payment can lead to lower monthly costs and stronger cash flow.

#2: Set Competitive Yet Profitable Rental Rates

The next best way to improve cash flow on a property is to ensure the rental rates being charged are appropriate. You should help your clients conduct a comparable market analysis to find similar properties to theirs and get them to understand what a fair market rate is for rent. From there it may be necessary to increase rental rates to match the market, or even lower rental rates. While the latter may sound counterintuitive, it can lead to more overall demand for units and improved vacancy rates, which can boost cash flow in the long term. It can also be lucrative to make value-add upgrades to the units to increase rental rates, such as updating the kitchen and bathrooms, or a fresh coat of paint for the walls.

#3: Reduce Operating Expenses without Sacrificing Quality

Reducing expenses seems like an uncomplicated way to improve cash flow, but it needs to be done in such a way that it does not hurt the level of service provided to tenants. You can start by recommending clients shop around or negotiate better rates for their property insurance. Maintenance can also end up costing owners a lot, which is why it is important to stay on top of fixes and do preventative maintenance to keep insignificant things from blowing up into bigger problems. Finally, there are tax strategies owners can use to reduce their taxable income, including business deductions and benefiting from depreciation by conducting a cost segregation study.

#4: Keep Vacancy Rates Low and Tenant Retention High

Tenant satisfaction goes a long way in ensuring owners receive consistent income from their rental properties. It starts by having a thorough tenant screening process, that way investors can be sure they are attracting reliable tenants who pay on time and won’t give them any issues. Then it’s about providing an excellent tenant experience; it’s important to stay in regular communication with tenants and address any issues immediately. This little step in extra care will make tenants feel welcomed and cared about, and more likely to stay at a property for longer. It might also be a good idea to offer incentives for long-term leases. Consider rent-reduced periods or free upgrades (like access to a property’s gym) for loyal tenants, as this will encourage them to sign longer leases.

#5: Diversify Rental Income Streams

It is possible to increase the income from a rental property through other things besides collecting rent. Offering certain amenities can diversify property income and be a great boost to cash flow. For instance, owners can charge for access to extra storage space, laundry facilities, and a gym on the premises. Investors may also want to consider purchasing mixed use properties, essentially those that combine residential and commercial space, for diversified income. It could also be worth converting an underperforming rental property into a commercial investment as an alternative mean of generating income.

#6: Utilize Resources to Make Smart Financial Decisions

Brokers can help their clients maximize their returns by providing relevant data and valuable insights into real estate markets. Stay up to date on the market by utilizing data aggregators, like ATTOM Data and REiDEALMASTER. Keep an eye on areas with high population growth and a growing job market, as they make for prime areas to invest in with rental property. The advice you can provide, backed by real-time data on these markets, can help your clients make better investment decisions and position you as a valuable advisor and partner. These clients will be more likely to return to you for repeat business and solutions for all things real estate related.

RCN Capital

The easiest way to save on an investment is to obtain financing from a real estate lender that can provide you with 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. If you are looking to finance a real estate project, RCN Capital has competitive loan options and an award-winning broker referral program available to partners.