Key Takeaways

1. Understanding Cash Flow is Essential: Cash flow determines the profitability of your rental investment. It’s simply the difference between your rental income and expenses.
2. Optimize Your Rental Income: Set the right rent price, draft a solid lease agreement, and market vacant units quickly to maintain steady cash flow.
3. Minimize Expenses for Maximum Profit: Reduce vacancy costs, streamline tenant turnover, and require renter’s insurance to protect your investment.
4. Attract and Retain Quality Tenants : A thorough tenant screening process ensures reliable renters, reducing the risk of late payments and property damage.

Cash flow is necessary when it comes to renting out property. It’s the lifeline of your investment and understanding it is key to being successful. Fortunately for you, understanding cash flow isn’t exactly rocket science. Once you grasp the basics, it’s easier than you think.

The following article by Peak Residential highlights the important basics to know when it comes to understanding cash flow and keeping your rental business profitable. 

As for maintenance, this is usually one percent of the home’s value every year. What you don’t spend in a given year should be carried forward onto the next year to cover repairs and improvements that don’t occur on an annual basis. Examples of these types of repairs include roof repairs and appliance maintenance. 

Draft a Solid Lease Agreement 

A well-written lease agreement is key to boosting your cash flow. A detailed lease can help protect you from undue expenses by clearly stating who’s responsible for what when it comes to things like repairs and maintenance. 

Use the lease to define clear roles for each party. The following are some things that you may want clearly defined to ensure minimum expenses and maximum cash flow:

• How much rent is due and when it becomes due. Let the tenant know about any grace periods and any applicable late fee charges. 
• The tenant’s responsibility to care for the property. For example, maintaining plumbing fixtures, properly disposing of trash and waste, and keeping the premises clean and sanitary. 
• The tenant’s responsibility not to commit waste on the property. In other words, the tenant must refrain from causing damage exceeding normal wear and tear. 
• The tenant’s duty to abide by all terms of the lease. This includes rules regarding pets, restrictions on subletting, and prohibition on illegal activities. 
• Require tenants to obtain an insurance policy to safeguard their personal belongings. A renter’s insurance policy can help protect you and the tenant from financial losses in case of damage to the tenant’s belongings and liability for accidents on the premises.

The lease can even help you create additional income streams, such as pet rent or a pet deposit. 

Market Vacant Units Quickly 

Vacancies are profit killers! Every month that passes by without a tenant means you’re losing money. As soon as a tenant shares with you that they won’t be renewing their lease with you, begin marketing the unit as quickly as possible. List the unit on rental listing sites, social media, and print out flyers and posters, among other strategies. 

For your marketing campaign to be successful, you’ll need to get certain things right, including charging the right rent amount, and having the right amenities.

Have a Quick Tenant Turnover Process 

Tenant turnover is key in maintaining cash flow as a landlord. Now, multiple things go into ensuring you have a rapid and effective turnover process. They include the following:

• Cleaning the Property: After a tenant moves out, you’ll need to ensure that it is clean for the next tenant. 
• Repaint Tired Looking Walls: A fresh coat of paint can do wonders when it comes to the general look and feel of your property. 
• Inspect the Unit for Damage: Damage can take either of two forms in a rental property. It can either be normal wear and tear, or it can be excessive damage. The landlord is usually responsible for the former, while the tenant is responsible for the latter type of damage. 

A quick tenant turnover process will help ensure you keep your expenses minimal. Ideally, a typical tenant turnover process should be completed within one or two weeks, depending on the condition of the unit. 

Update Your Rental Property 

To attract and retain quality tenants in your rental property, you’ll need to consistently update its look and feel. The following are some telltale signs that you need to update and renovate your rental property for optimal cash flow:

• Outdated or damaged flooring
• Peeling or faded paint
• Outdated or malfunctioning appliances
• An uninspiring curb appeal
• High energy costs

Other indicators include a high tenant turnover rate, difficulty in attracting new tenants, and complaints from tenants about their unit’s condition. 

Rent to Quality Tenants 

This is a key recipe for maximum ROI. You see, no two tenants are ever created the same. That’s why it’s important to have a meticulous tenant screening process to help you differentiate the good ones from the potentially difficult ones.

A good tenant screening process is one that examines prospective tenants from a myriad of angles, including their creditworthiness, income level, rental background, employment status, and criminal background.  Ideally, hire a property management company to help you in this regard for optimal results. 

Bottom Line 

Now you know what cash flow is and what you can do to optimize it for a high ROI. For additional tips, look no further than Peak Residential! We are a full-service property management company that can help you manage your Sacramento rental property. Get in touch to learn more!