How to Maximize Your Cash Flow

Whether you are investing in the bustling Houston economy or a slowing Alberta market, investing in real estate can be the avenue you need to achieve your retirement dreams or add the additional monthly income needed for the lifestyle you desire.  None of this would be possible if your properties and portfolio are not producing the maximum positive cash flow.

The concept is simple, your monthly rent needs to exceed your monthly expenses giving you money to put in your pocket each month.  A solid cash flowing property will allow you to ride through the down times in the market without losing your shirt so you can cash in when the up-swing hits.  With so much on the line, you need to ensure that your properties are producing the maximum amount of cash flow they can regardless of the state of the economy.  Below are 4 simple things you can do to maximize your cash flow on each of your deals.

1- Fight to Reduce Your Property Taxes- As the saying goes, the only things certain are life, death and taxes, and investing in real estate is no different.  While your federal and state/provincial taxes may vary depending on your corporate structure, property taxes hold true regardless of how you hold your investments.  This does not mean that you are just obligated to pay what you are assessed.  Most municipalities have a process where you can appeal your property taxes, in particular, you can appeal the assessed value the municipality has placed on your property and is used to calculate your property taxes.  In some municipalities, such as Harris County, there are professionals, some are lawyers, and some are consultants, which specialize in appealing your property taxes.

These specialists will do the entire appeal process on your behalf and most will only charge you if they are successful in reducing your taxes!!  Since they only get paid if they can
reduce your taxes, they are clearly motivated to ensure your taxes are as low as possible.  To illustrate this, if you have a property tax bill of $3,000 for the year you’re your appeal results in a 10% reduction, that is a savings of $300!!! Even if you have to give up 50% of the savings to the consultant that is still $150 you saved yourself by only making one phone call.  That is money I will take to the bank every time.

2- Cut Your Insurance Bill- Having insurance on your property is a must.  Not only does it offer some protection in the case of litigation, but it can also protect you in case the unforeseen happens.  While insurance is a must have doesn’t mean you have to pay through the nose for it (Please note- Always ensure you always have adequate insurance in place and do not sacrifice your coverage to save a few bucks).  With that in mind there are three easy ways to cut your insurance bill:

a. Increase your deductible- By increasing your deductible you can often times decrease the premium you are paying as the insurance company believe that if you are paying a $1,000 deductible as opposed to a $500, the odds of them seeing a claim from you decrease.

b. Buddle your properties- If you own more than one investment property, try to bundle them under one “umbrella policy”.  By doing this you can often achieve an economies of scale as from the insurer’s perspective, the risk is now spread across more properties and because of this you could get a reduction in your
premiums.

c. Shop Around- Insurance companies are like most others out there, they will try hard to get your business and then take you for granted once you are in their
system.  You should shop around to at least 3 different brokers or providers each time you purchase/renew your insurance.  You never know what goodies,
reduction in premiums or extra coverage you can get simply by asking the question.

3- Increase your Rents- You must treat your real estate investing like a business and what do businesses seem to do, whether it be your cable company, cell phone provider, bank or accountant?  They increase their bill/fees any chance they can stating a hot economy, inflation, increased costs etc.  Your real estate business should be no different, when your tenants lease is coming up for renewal you should increase the rent by at least the level of inflation so your revenue keeps up with your expenses.

I know that there are some areas with rent controls in place that restrict this activity and some down markets with high vacancies that will not allow for this.  However, if you are in a more landlord friendly, hot economy like Houston, then you should take advantage of this at every opportunity.  Even if you take a reasonable 2.5% increase based on inflation alone on a property that rented for $1,100 last year will increase your rent by $27.50/month.  This mall increase will often not drive your tenant away, especially if you have been treating them well and that little increase can put an extra $300 in your pocket for the year even after paying your property manager.

4- Cut Your Mortgage Payment- In this age of ultra-low interest rates, it would be a good strategy to review the financing you have in place on your property.  What was a good interest rate even 5 years ago could probably be refinanced for 1%-2% lower today.  While there are costs associated with re-financing, the savings from shaving 1%-2% off your interest rate can more than make up for it.  For example, a 2% reduction in interest on a $75,000 loan can result in savings of $1,500 for the year.  An extra benefit is that you could always cash out some of the equity in the property and also reduce your payments further by stretching out your amortization period to the full 30 years.

These 4 items not only make sure that your investment is healthy but that it is also preforming at its optimum peak.    These are also items that can be reviewed on a regular basis and on each property you own so you can always ensure you are maximizing your cash flow and getting closing to the lifestyle you desire.

Adam Zanoni

CFO

Twinstar Capital