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For real estate investors its all about maximising profits by maximising cash flow. It is the cycle of acquiring, holding and selling rental properties in order to generate more cash inflows to cover all the cash outflows required to maintain a property including maintenance and mortgages.
However, many real estate investors tend to focus on the wrong things. Far too often, investors and entrepreneurs get caught up by the vanity of the top line (revenue) - after all - it is what most people from the outside looking in judge you by. What investors should be looking out for is the bottom line.
The bottom line shows income after all the expenses are deducted including mortgages, loans and other payments. This is particularly important when in come to benchmarking a property. Owning a property comes with a lot of expense. Things like insurance, council rates and maintenance can catch real estate investors off guard.
One of the biggest mistakes investors make is focusing on ways to increase the cash inflow with a solid rent structure which only addresses half the problem. Ongoing/hidden costs are tended to be ignored including repair costs and maintenance which can ultimately drive the property's cash outflows. Therefore many investors wind up disappointed because even with the abundant revenue streams generated, their subsequent cash flow and profitability is lower than expected.
So here's some 5 unique ways to eliminate and reduce money-wasting property expenses in order to curb outflows and thereby boost higher profitability and improve the bottom line.
1. Screen, screen and screen
You might be surprised to discover that you can eliminate up to one-half of your maintenance, repair, cleaning, and wear-and-tear costs simply by selecting tenants who demonstrate personal responsibility. It gets said all the time, but it’s worth repeating: You need to screen and screen diligently.
The idea is not to simply fill a vacant property with just any renter. Be selective, even if it means that the property is sitting idly. Because in the long run you're investment will fare better with low-maintenance rather than with high-maintenance tenants.
2. Know What You're Buying
Too often real estate investors fall victim to the property's sale price and disregard the issue of maintenance only to discover later that they purchased a money pit. So dig deeper.
Find out the history of the property, see what materials they used and where they constructed the property. If the price is too good to be true then it probably is. So be careful when you're buying a property.
3. Recruit a Handyman
Using a competent and trustworthy person to take care of your property repairs and maintenance will do wonders to save time and improve your relationship with tenants. Having someone doing day-to-day tasks will help show tenants that your willing to listen and respond quickly to maintenance requests.
Prefer to do some of the work yourself? That's also great! As long as you don't shoot yourself in the foot and over spend, or repair it incorrectly.
4. Impose a Strict Repair Clause
This can be difficult to impose because no landlord wants to pressure and keep out good tenants, but it is a good way to promote renter responsibility by shifting some amount of every repair cost onto the tenants. Perhaps by making them responsible for the first $100.
If you're new to real estate investing you might want to see how other landlords in your market area handle this. The idea is to tread lightly but cover yourself.
5. Do Preventive Maintenance
Unless you own a brand-new rental, the chances are that things are going to need to be maintained. you might need a fresh coat of paint,You might have broken water heater, a leaky taps, or you might need some new carpet. There are a billion things that can go wrong with a property. So it is always a good idea to put aside some cash just in case.
Some people will put aside a percentage of rental income(maybe 5%) other the people will set a figure each year for the maintenance. But at the end of the day you will likely spend what the property demands, which can be unpredictable.
Rule of Thumb
Real estate investors that pay close attention to a property's entire financial performance including maintenance and repairs are more likely to succeed at generating a profit from investment real estate compared to others who don't. There is software like Kitt that can help real estate investor benchmark and assess their financial position via accounting principles and growth tools.
As an old saying goes
The top line is vanity, bottom line is sanity and cash flow is reality.
Here's to your real estate investing success.