Ways to increase cashflow from your properties.
One of the good things about being a property investor is that you can give yourself a pay rise every so often.
If you treat your investing like a business, you should already be looking for ways to maximise your cashflow.
But, what if we told you that this could be much easier than you think? (And it may not involve spending any extra money.)
The business of being a good investor.
Nathan Birch has a pretty big cashflow. With a portfolio of more than 200 properties, the renowned property investor and Head of Binvested makes about $500,000 a year in passive income.
He says, while some people think putting a granny flat on their property is a good way to increase cashflow, he doesn’t own any himself.
Instead, Nathan sees things from a more business-like perspective.
“For me, I look at the management of how I can continuously increase my portfolio by saving costs and adding to my bottom line,” he says.
“As an investor, I’m constantly treating my portfolio like a business.”
“If you can save on some costs, whether it be reviewing your mortgages, whether it be reducing your expenses, whether it be fixing your vacancy period – those sorts of things all go hand in hand.”
Reviewing your rent.
Nathan says, doing an annual rent review is an important way to keep your cashflow at its prime.
Most of the time, he doesn’t need to do any extra work on the property in order to get a higher amount – he simply asks and receives.
When he buys property for clients as part of his buyer’s agency, they are often able to improve the cashflow dramatically after tidying up a few things.
“Sometimes we see people who are getting $50 to $80 per week less than what we’re getting for them,” he says.
Avoiding unneeded repairs.
“A lot of repairs that are done to properties don’t need to be done,” says Nathan.
He says, often property managers will push for repairs or upgrades to be done after a tenant has requested them. But, usually, the property would have been rentable without the work being completed.
Don’t be a slumlord.
On the other end of the spectrum, are those landlords who try so hard to save money that they don’t do proper maintenance.
The property ends up being unsafe to live in and the landlord risks being sued.
Since it hasn’t been well maintained, all sorts of major repairs need doing – one after the other. This costs even more money, which impacts cashflow in a major way.
Make it work for you.
If you do agree to do an unneeded repair or upgrade, Nathan recommends asking for a rent increase to make it worth your while.
But, it is important to make sure you are getting a good return on your investment.
How to get the most out of repairs.
When it comes to doing repairs, Nathan likes to get real bang for his buck.
“What I like to do personally, is wait until things need to be done but then do full renos,” he says.
“There’s no point doing a paint and a carpet, which might cost you $5,000 and then leaving the kitchen and the bathroom crap.”
“If I’m going to spend $5,000, I may as well spend $10,000 and get an extra $50 or $100 per week in rent.”
By doing a complete renovation all at once, he says he is able to save money and avoid damage. For example, if he put in new carpets and repainted one year, then replaced the kitchen the next, the new carpets might get damaged during the renovation.
If he gets the place repainted before putting in new flooring, the job is quicker and easier since the painter doesn’t have to worry about protecting the floor.
By structuring renovations thoughtfully, it is possible to save money on the overall cost as well as add the most value in one hit.
Crunching the numbers.
As always, the numbers don’t lie. If you are going to invest $10,000 in a renovation, then you should look to maximise your return.
Nathan says when upgrading his properties, he looks to make a 30 to 40% per annum return on his investment. In other words, if he spends $10,000 on a renovation, he aims to make about $4,000 more each year – or, $75 per week extra in rent.
To subdivide or not?
It is possible to subdivide and add a second dwelling to some properties, or to build a granny flat in order to increase passive income.
Nathan says, when he buys a property, he looks at what it will do for him and how it will fit in his portfolio.
While an extra dwelling may bring in $300 more rent, the cost of doing the development may equate to deposits for three more properties. This could potentially mean an extra $900 rent and much more capital value.
What do you need for your portfolio?
“Cashflow is very important, but at different times, you need different things for your portfolio,” says Nathan.
Cashflow may be key, but it is certainly not the only thing to look for. It is important to have a solid plan in place to keep you moving in the right direction.
If you do need to increase your cashflow, make sure you have a proactive property manager whose goals are aligned with yours and not those of the tenant. A good property manager will work with you to maximise returns and reduce vacancies.
Afterall, you want to get the most out of your assets – even if it means putting your property manager through their paces.