Whether you’re a small-scale Landlord with one property or a seasoned Investor with a large portfolio of properties, managing Cashflow is a critical part of your long-term success. In today’s environment, most Landlords are feeling the strain of high Interest Rates and property prices. Higher costs mean lower profit margins, so it’s critical for Landlords to focus on Cashflow Stability and Equalization.
Cashflow Stability mostly comes in the form of on-time and in-full rent payments from their Tenants, but it also comes from controlling and minimizing expenses. Even pesky small repairs can eat away your profit margin over the course of the year.
Cashflow Equalization is more about spreading fixed and variable expenses evenly across all months of the year. Focusing on Equalization helps to alleviate the highs and lows from month to month, and provides much-needed predictability and peace of mind for Landlords.
So, how can you manage Cashflow Stability and Equalization?
Pay your mortgage weekly
Paying the mortgage in smaller chunks just seems more manageable. It also makes financial sense. A weekly or bi-weekly payment will save you thousands over the life of the mortgage, as you’re basically making an extra payment each year (painlessly!)
Pay Property Taxes and Insurance Monthly by PAP
Most Municipalities and Insurance companies will allow you to set up a pre-authorized monthly payment. For us, this has been a game-changer, as you eliminate those large Bills that can be hard to plan for.
Reserve funds and LOC
Set aside 5-10% of the rent each month in a separate account, to be used for unforeseen expenses. Another option is to have a small Line of Credit available if cashflow is tight.
Preventative Maintenance Inspections
Keep your property in tip-top shape, to minimize those costly repairs. Of course, things do break, but you can avoid many issues through effective Property Management. A neglected property will slowly get run-down over time and expenses will start increasing. Unnecessary cleaning and repairs when turning Tenants will also impact your cashflow.
Create a Maintenance and Improvement Plan
Over time, your property will need repairs and improvements. Not necessarily from Tenant wear-and-tear, but also to protect and improve the value of your investment and to ensure that it’s desirable to prospective Tenants (which affects your revenue).
Embrace Technology
Use an online accounting software to manage your finances. Platforms, such as Quickbooks Online, allow you to connect your bank accounts, so that you can track income and expenses in real-time. Even more important: you can schedule-out your income and expenses months in advance. This allows you to better manage your cashflow and adjust for potential short-falls.
Automate as much as possible
The ultimate goal is to put the property on autopilot. This is more about reducing stress and making your investment easy and hassle-free, which is totally doable. Set up pre-authorized payments for all recurring expenses. At the very least, you won’t be wasting brain power on remembering to pay bills, which becomes critical as you add more properties to your portfolio. You also won’t be stressing about paying those periodic large bills, like Property Taxes, as you’ll be paying them automatically every month. You won’t even have to think about it, which is such a relief!
