How to Control Cash Flow in Residential Real Estate

Investing in real estate can be a great way to generate extra income, but it requires some smart planning. If you’re not careful, you could end up spending more than you’re making and that will lead to greater financial troubles than you had before the investment.

Are You Charging Enough for Rent?

It’s best to keep your rates around the same as other similar rental units in your area. If you charge too much, you may lose your tenants and have trouble finding new renters. On the other hand, charging too little will cost you and defeat the purpose of investing in real estate.

Don’t Pay the Asking Price

This is true, whether you’re a first-time home buyer or an investor. The home inspection is conducted to discover problems, before you buy the property. Faulty plumbing, a bad roof, or other issues can be used to your advantage. The owner may consider accepting a lower bid in consideration of the repairs needed to get the property up to par.

Don’t Mortgage Properties

Short-term thinking may suggest that you can take out a mortgage to buy investment properties as long as the rent will cover the mortgage payment, but this is problematic for at least two reasons: 1) this assumes that you can keep the place rented, and that’s not always a reasonable assumption, and 2) rental properties are in constant need of cash-thirsty repair. Outgoing mortgage payments crush your cash flow and make basic maintenance a headache. While saving up and paying cash for real estate may delay your investments for a few years, a paid off property cash flows like a bandit!

Reinvesting is King

It may be tempting to use the rental income to pay off the mortgage, but consider reinvesting it in more rental properties. The more you own, the higher your equity rises. Additionally, buying real estate below market value will help you gain access to instant cash and equity.

Avoid Multi-Family Complexes

Sure, multiple apartments can generate multiple sources of income, if you can keep them occupied. Single family homes tend to attract families and more stable individuals, which means you can count on retaining good renters for longer terms. These types of tenants will also respect the property more, treating it as if it were their own.
A little planning and consideration can lead you to a wealthier future more quickly. While real estate investing isn’t for everyone, it can be an exciting and lucrative prospect for those with the patience, dedication, and determination to follow through. Best of all, it can lead to a debt free future.