23 Ways to Solve your Negative Rental Cash flow and turn it positive
2015 was a difficult year for my real estate investments. I started the year taking a sabbatical from my government job, and shortly after I ended up quitting. I planned on relying on the property investment cash flow to help pay for my living expenses, but it didn’t work out so well. The rental cash flow was too unreliable. Sometimes I received a paycheque from my real estate investment properties and other times, I had to return the paycheque to pay for roof repairs, cover vacancies, a new roof, two tree trimmings, and regular maintenance.
Every real estate investor looking to amass a portfolio of properties has dreams of growing the equity in their investment properties through appreciation, cash flow, and mortgage pay down. It would be nice to have linear growth over time but the reality is that the real estate market actually looks like this:
There are dips in the real estate market and it takes time to recover, at least two years as shown above.
Negative rental cash flow happens when the expenses on the property exceed the amount of revenue (rent) the property is generating. The larger the portfolio, the more likely you will be experiencing this from time to time. This is the reality of real estate investing. It is no different than seeing your dividends go down when a stock is struggling with a plunging stock price and/or declining earnings in a tough market. As shown in the graph below, there have been 8 recessions in the stock market.
Source: Marketwatch/Morningstar
Like the markets that go up and down, real estate investors experience negative cash flow from time to time. The key is to not be scared of them. Arm yourself with knowledge, reduce your anxiety and protect your real estate investment by implementing any of these 23 strategies rather than learning things the hard way.
Build a cash contingency fund equivalent to two months of expenses for each property.
Add a life line to your property by having a secured line of credit (e.g. a home equity line of credit) for unexpected expenses.
Convert to a student rental property to increase rental cash flow.
Convert to a short term rental unit through Airbnb to increase monthly rental cash flow.
Convert to a full furnished unit with shorter leases to increase monthly rental cash flow.
Buy rental loss insurance to cover vacancy periods. If you have an insurance claim on your rental properties, and your tenants need to be relocated, the insurance company will cover your rental loss.
Make sure you’re properly insured.
Hustle, hustle, hustle when marketing those vacancies. If your negative cash flow is happening because of vacancies, you need to get on it right away.
Reinvest your cash flow back into your mortgages to pay them down faster. This grows your equity and builds up your HELOC (equivalent to cash).
Join a rental pool if there is one to help offset losses and share expenses with other landlords in the rental pool.
Check into government incentives. There are many programs out that offset property taxes depending on the renovations and/or return portions of your HST.
Some property management firms guarantee a minimum amount of monthly income, this is common for vacation rentals.
Join the sharing community and gain some income- charge for using the detached garage, laundry, parking spot, storage space, shed space.
Charge more rent if you have fancy amenities such as a gym, sauna, or a pool.
Boost your rental price with inexpensive cosmetic upgrades to your rental property – paint, new window treatments, doorknobs and kitchen hardware
Convert to a rent to own property as a strategy for selling the home and boosting monthly rental cash flow.
Partner up with a joint venture partner to get a boost in cash in exchange for some equity. You also start sharing all expenses and profits with the other partner.
Convert an old basement into a rental suite or add another suite to your rental property (if allowed).
Convert the rental property to a vacation property or bed & breakfast.
Refinance the property to a longer amortization and/or lower interest rate to boost monthly rental cash flow.
Establish great relationships with your tenants and treat them well so that you increase the likelihood of them treating your place well and staying longer, too.
Skip a mortgage payment. Add the mortgage payment to your HELOC, pocket the cash, and write-off the expenses.
Worst case, sell the place especially if you bought a rental property that is generating a lot of negative cash flow.
What did I miss? What are your strategies for dealing with negative rental cash flow?
Commentaires