Tag: cash flow

Boost Rental Property Cash Flows

Updated April 13, 2024. Ever wondered if there was a way to get more money from your rental houses? In my opinion I believe these are the best three ways to boost your rental property cash flows into a real cash flowing machine.

There are three ways to dramatically increase the rental income for a property. Do you have rental houses that are close to colleges or universities? Do you have a vacation rental property that is close to the beach? The three kinds of rental properties that you could be making more money are student housing, vacation rentals, and my favorite: rent to own.

Let’s take a look at the 3 ways to boost your rental property cash flows into a real estate cash flowing machine.

Difficulty Finding Good Rental Tenants?

If you have or are thinking about buying other houses as rental units you can significantly increase the rent from these houses. Let me show you how. Let’s suppose that you decide to rent out a property. One of the problems is the occupant. What if the tenant decides not to pay the rent? You are getting no money on that unit. This is a huge problem because on most properties you still have taxes, insurance, maintenance, management fees, etc. On top of that many times you have a big mortgage to pay every month.

So if the tenant decides to move out you have a real financial issue on your hands. If you think about it, if the family moves out of the rental unit for one month so that it is vacant, a lot of time that will remove all the cash flow for the entire year for that property. So basically you have to have a 0% vacancy on the rental houses to make them work. But 0% vacancy is not realistic. In the real world, the reality is that some renters don’t always pay you.

Problems With Rental Cap Rates And NOI

The other problem is a lot of the time the rental houses will have a low cap rate. Say you rent out a property to a tenant for $1,200 a month. But then say you have to deduct the $100 for the taxes, $75 insurance, $100 property management fees, and $125 for maintenance. These costs total $400. So $1200 rent – $400 = $800 NOI (net operating income). In this example, after paying all the expenses you will have $800. Then multiply the $800 x 12 = $9,600 is what you receive each year for renting out this house. BUT this is assuming that you do not have a mortgage.

Determining Property Cap Rates For Rentals

To determine the cap rate you need to take the NOI of $9,600 and divide by the purchase price of the house. The typical family single home prices vary widely in the world. But let’s say that the cost for purchasing this house is $150,000. So $9,600 divided by $150,000 = 6.4 cap rate. A cap rate of 6.4 is bad. Most real estate investors look for a cap rate of 10 or above.

Blueprint To Boost Cap Rate On The Same Property

So here is the millionaire dollar question. How do we increase the cap rate above 10 on the same property? The cap rate is so bad in the example above we just looked at because the cost to purchase the house is so much more than the rental rate. Therefore in order to make this house a cash flowing machine we are going to have to get very creative.

Now let’s take this very same house and not change anything at all. We want to have a house that a person could move in and live in that home as their primary residence. Basically we still have the highest and best use of the house: a single family residence has the highest and best use.

There are three ways to boost your rental property cash flows. These three techniques will greatly improve your cash flow each time you find another house to buy. Let’s take a look at the 3 ways to boost your rental property cash flows into a real estate cash flowing machine.

3 Ways To Boost Your Rental Cash Flows

Idea #1 Student Housing

Are there universities, colleges or specialty schools in the area of the rental house? If the answer is yes, then get some more furniture and you can rent out the house by the room. The furniture for student housing can be bought very inexpensively at a second hand store and that will be fine for student housing.

Say the rental house has four bedrooms. You rent the house for $550 per room. 4 bedrooms x $550 = $2,200. Not bad right? $1,200 to a family or $2,200 for student housing and you market the student housing directly to the college or university.

Now usually you have to time it right because there are certain times of year that students will be looking for their housing. Once the students find their housing they are locked in for a year. You just have the parents co-sign, that way you are going to get paid no matter what. Once the students are there at the rental house, they will tell other students and the student rental house will be all set for years. This is an awesome way to turn a rental house into a cash flowing machine!

Idea #2 Vacation Rentals

Vacation rentals are the perfect way to rent your house if you are by the beach or by a beautiful place in the mountains. For most vacation rentals you are renting by the night. Let’s again use our example of the rental house with four bedrooms. This four bedroom rental house could easily rent for $4,000 a month. Compare $4,00 a month vacation rental to $1,200 a month for a normal typical family! What a huge difference between $4,000 a month versus $1,200 a month!

Remember though that there are a couple of expenses. One is furniture. This furniture needs to be a little bit more expensive. You need to be thinking about people writing positive reviews of your vacation rental. A little bit nicer furniture will positively impress the photos when people are looking online to decide which house to rent for their vacation. You may have to spend $5,000 or more on furniture depending on your location.

The other expense is utilities. Depending on the location of your vacation rental property, the utility bills could be a larger expense. Factor in air conditioning, gas, water, electricity, as well as internet and cable.

Earlier I was talking about cap rates for this four bedroom rental house. I was saying that to rent this unit to a typical family produces a cap rate of 6.4. A 6.4 cap rate is lousy. But here are the cap rates for student housing and a vacation rental.

Student Housing & Vacation Rentals Cap Rates

Student housing with purchasing second hand furniture: Double the cap rate of 6.4. Here you are looking at 10 or 12+ cap rate. Now you have a much better rental solution!

Vacation rentals with nicer furniture and possibly larger utilities: The cap rate can go to 20+. As you can see, a 20+ cap rate is awesome! But the best part is this. People come, stay, and then leave. You don’t have to worry about evictions because the people are there on their vacation! You have so much money coming from your vacation rental that you can afford some of the hassles (like little things getting broken) that will happen when people stay.

Idea #3 Rent To Own

Rent to own is a beautiful way to build nice profits in residential real estate. The big secret is this: so few people are doing this technique! People don’t know about it. The other real estate investors are concerned and there are not that many professionals that the other investors can call and ask for help. Please check out the laws of your rental properties to make sure that their are no laws against rent to own properties.

This technique is huge because for the most part student housing or vacation rentals are not an option for many cities and locations. There is no school nearby and it is not a vacation destination. So what do you do in these cases to turn the house into a cash flowing machine?

Setting Up A Rent To Own In Order To Boost Cash Flows

You have to offer the house on a rent to own rental agreement. Here is how to set up the rent to own strategy:

Get an upfront, non-refundable option payment. When the people are first moving in, they are getting a lease with you (one document), and another document which is the option to purchase the property at a specified price when they first move in (second document). To get that option they are going to pay you upfront.

How much are they going to pay you? Could be anywhere from $5,000 to $10,000 or even more. Can you believe it?! Anybody could ask for $2,000. If you are good at marketing you can get even more. A lot of people have mattress money (more than you think). They have this money, especially around tax return time when they are getting a tax refund. Around the month of April in the US is a huge time of year for the rent to own strategy.

Move All Maintenance To Tenants & New Owners

Push all maintenance to the tenants. As a result, there is no more maintenance. They are becoming the owner of the property. If something bad happens, that is all them. For this reason, you can push all maintenance off to the new owners. Important: there are certain tenant and landlord laws that will supercede this. For example, even though the tenants signed an agreement saying that they will maintain the property, if the HVAC goes out, the owner might have to fix it.

So be wise and check and see what the laws in your area look like. But for the most part, this will save you $125 in maintenance that we were talking about previously in the four bedroom rental house example. This is awesome because now the tenants are handling the maintenance!

Higher rental amount. Usually the tenants want to pay less rent for the house. Normally. But here you can do rent credits. Check with your location to see if this is allowed. Rent credits allow you to raise the rental rate. Say rent is normally $1,200 a month. You bump that up to $1,400 a month. Then you give the tenants a credit of $300 a month. The tenants can use the $300 credits to reduce the price of the house when they are going to purchase.

Big Secret About Rent To Own Properties

Here is the big secret to rent to own properties. Ready? Over 90% of the people who do a rent to own will NEVER EVER exercise their option to purchase. They are NOT going to buy the property in almost all cases. So relax and do not worry. The probability is that no one will buy your rental home.

Now if you keep renting the rental house out, the probability will increase that someone will eventually buy your rental house. But if you keep doing the rent to own strategy, the rental house profits should make you very happy. If one out of ten buys your property, it’s ok. Just go and buy another property. It is a win-win situation.

What I love is this. With the rent to own houses I get the money up front. What if there is a problem and you have to evict the tenants? If that’s the case you already have money up front to do it. As well, what if you have to replace the interior of the house with new carpet and paint? Again you have the money to do these renovations as well. Whatever happens, with the upfront money you already have, you are covered!

I often get the question: why do people do the rent to own and then change their mind? The reason is because these people typically don’t have a better financial situation tomorrow than they do today. Typically these people are just not trying to better and improve their lives like you.

Advertise Your Rental Property

The rent to own is so exciting because so few people are doing it! If you put up a signs around town that say:

With this sign you will get hundreds of phone calls. You will have to get up a different phone to handle taking the messages you will receive. The phone will ring off the hook. This Rent To Own sign will work in urban or rural areas. It really doesn’t matter. Why? Because there is a huge population of people who want the OPPORTUNITY to rent to own their own home and almost no one offers it!

Examples Of How To Make The Phone Ring

So when you do it and the phone starts ringing you will find out that the majority of the people have some problems. Examples? No jobs, and no money to put down. Get a voicemail message machine. I say in the message on the answering machine that I am looking for people who have $5,000 dollars to put down and $3,000 dollars earnings a month. Please leave your information. You are going to have to filter the people because you will get hundreds of calls. Believe me, you will not have an issue with potential people to screen when looking for the right tenant.

Improve Your Cash Flow Today

There are three ways to boost your rental property cash flows. The best three rental properties are student housing, vacation rentals, and my favorite: rent to own. These three techniques will greatly improve your cash flow each time you find another house to buy. These strategies are the foundation of any creative real estate investor, and in my opinion, these strategies will build you wealth as a real estate entrepreneur.

What popular articles and blogs do you recommend?

If you are interested in finding out the secret to buying houses when you don’t have the necessary cash, please read my blog: Buy Houses Without Cash Or Credit to get you on the right path for creating wealth.

If you are interested in Becoming A High-Net Worth Individual, please read my blog and watch the YouTube video by a fancinating guy named Andrew Hendersen, founder of Nomad Capitalist. He believes that the world has changed forever and says it’s time for you to “go where you’re treated best.”

Best wishes! Until then, watch for my next blog….

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Last Updated on April 13, 2024 by Financial Goodness