No matter how many rental properties you own, if they’re not producing a decent cash flow, then you’re not living your dream. Cash flow is what keeps your real estate investments healthy and growing, so it’s important to fully understand your cash flow for each property you own. But what is a “good” cash flow versus a “bad” cash flow? The answer isn’t so simple, mainly because what is considered a good cash flow in some geographic areas may not be enough in other areas. Here in southwest Florida, where the housing market and rental rates have soared, maintaining a healthy cash flow requires more effort than ever.
What is Cash Flow?
Cash flow is the amount of money left over after all property expenses are deducted from all property income. For rental properties, this would be the amount left after expenses are deducted from the rents received.
Calculating Cash Flow
To calculate your rental property’s cash flow, start by writing down the total rent received for the property each month. Then write down each expense you have related to the property – these could include a mortgage payment for the property, taxes, insurance, utilities you pay, maintenance costs, property management fees, etc. Some of these expenses are paid annually or semi-annually, meaning you’ll need to break them down into their monthly amounts to get an accurate monthly cash flow figure. You will also want to include the cost of any time the property remains unrented, known as vacancy loss. Total up all the expenses.
Now subtract the total monthly expenses from the total rents received for the property monthly. The result is your monthly cash flow. A positive number indicates that your property is earning more income than expenses, while a negative number indicates that your expenses exceed your income.
What Makes a Good Cash Flow?
What makes a “good” cash flow is very subjective. A positive cash flow is always a good thing, but for the investment to be worth the work, it needs to have more than just a $10 or even a $100 positive cash flow each month. For a rental investment to be worth it, the landlord needs to have a positive cash flow of at least several hundred dollars each month. In high-demand, more expensive areas, landlords can expect to cash flow even more.
What About Here in Southwest Florida?
In more competitive markets like southwestern Florida, aiming for a cash flow that can comfortably cover a 6-8% return on your investment annually is a strong target. This not only ensures that the property is self-sustaining but also provides a cushion that can absorb unexpected expenses or market fluctuations.
Factors Affecting Cash Flow
Several factors can impact the cash flow from a rental property:
- Location: Properties in high-demand areas typically command higher rents, which can significantly improve cash flow.
- Type of Property: Multi-family homes often generate higher cash flow compared to single-family residences due to multiple income streams from one property.
- Property Condition: Well-maintained properties make tenants want to stay, reducing the vacancy rate and improving cash flow.
- Market Conditions: Economic factors like inflation, employment rates, and population growth can affect rental demand and pricing.
- Competition: When competition in an area is high, the rental supply increases and rental rates decrease, impacting cash flow.
Strategies to Improve Cash Flow
If your property is not achieving good cash flow, consider strategies such as:
- Making sure the rent being charged is in line with current market conditions
- Improving the property to justify higher rent
- Reducing vacancy rates by marketing the property more effectively and focusing on tenant retention
- Refinancing any mortgage you may have on the property to lower monthly payments
- Reviewing and minimizing operational costs
Trust Douglas for Impressive Cash Flow
Understanding how to maximize cash flow is crucial for the success of any rental property investment, which is why cash flow is always a priority here at Douglas Realty Property Management. By focusing on strategic property improvements, tenant retention, and efficient management, we enhance your property’s cash flow, ensuring a lucrative and sustainable investment for years to come.
If you own a rental property in southwest Florida and want optimum cash flow, our property management services can help. Contact us today at 239-542-6906 or send us a message online to find out more about how we can maximize your rental income and streamline your property operations, ensuring your investment thrives.
