How to Increase Cash Flow on Your Investment Property
How do you increase cash flow on an investment property? The value of every income-producing property is greatly affected by small changes in certain aspects of the property. The cash flow of any property, either before or after taxes , is one of the important criteria to your investment. Your specific goal may not depend or even require an increased cash flow. Yet, because cash flow sets the cash on cash yield (the return on your actual cash invested in the deal), anything that increases the cash flow will generally increase the value of your property.
What to Consider
You can increase cash flow by doing any of the following. The items shown below may be combined or acted on individually. It is possible that the result will be immediate with some, and slower in coming with others. To accomplish some of these, such as increasing rent, you may have to spend money in improvements and maintenance to upgrade the property. Each of the following four items may be within your control.
• Increased collected revenue
• Reduced operating expenses
• Reduced fixed expenses
• Reduced cash invested
Increase Cash Flow by Increasing Collected Revenue
• Increase monthly rent. If you study your competition closely, you may discover that your rents are lagging behind. Stay up with the market whenever possible.
• Increase occupancy. Be aggressive in looking for good tenants, even when you don’t have a vacancy. You may help a would-be tenant plan ahead for a scheduled vacancy you will have coming up in the near future.
• Introduce “added income”. In commercial properties these extra services might include security alarms and service, janitorial, executive services such as found in executive suites with conference rooms to rent out and professional services for administrative support.
• Enforce rent penalties. Many landlords overlook or forgive the penalties that are built into the lease. When tenants are late, or damage a property, they should be held accountable. Failure to collect can come back and punch you in the notes by encouraging people to get way with more than they should.
Increase Cash Flow by Reducing Operation Expenses
• Ge competitive prices. If you have a lot of services then get competitive pricing from different providers
• Charge the tenants for some of the “free” services. If you don’t have a common area maintenance (also called CAM), then add it. It is always quoted extra from rent, watch our for tenants requesting a CAP on “operating expenses” often times tenants will request a 3-5 percent cap on controllable expenses. This is also true in NNN leases where a tenant can request a Stop expense on HVAC, where as any costs above a specific amount would be the responsibility of the landlord for repair and maintenance and even replacement of HVAC units.
How to Reduce Fixed Expenses
• Reduce annual real estate taxes. Appeal to the taxing authority and request a reduction in the tax assessment. There are companies you can hire who will charge you only a percentage of what you save.
• Reduce your debt service. This may be nothing more than refinancing to a lower interest rate, or if your existing loan is two/thirds into its term of years, then a new longer term loan may reduce your monthly payments even if the interest rate is higher than the existing one. Remember, it is the constant rate that you need to look at.
Investing In Commercial Real Estate?
Looking to invest in Arizona Commercial Real Estate? At ICRE Investment Group, we work with commercial investors, property owners, companies, banks, and commercial loan servicers seeking the highest quality of services in the greater Phoenix, Scottsdale, Mesa and Tempe Arizona regions. Contact us for more information.