In today’s market with uncertainty only a capuccino away, interest rates potentially on the rise, rumours of a capital crash costs seemingly doubling over night, it is crucial that you implement cashflow strategies into your portfolio.
But what is cashflow and how does it impact me?
At its very basic, cashflow is the money that you have left after all of your income has come in and all of your expenses have gone out. It can be very easy to overlook when things are doing well – but when they aren’t, it’s crucial that you focus on ensuring a positive return at the end of every month.
Cashflow Strategy 1: Rent Your Properties
This strategy is very simple but you’d be surprised at how many landlords allow one of their properties to become vacant. This may even be you – do you have one, two or more vacant properties right now draining your cashflow?
If so; your immediate priority should be to get this rented – even if you have to take a short-term hit. By this I mean, if you have lower the rent below what you really want in order to get your property filled – then do it. I’ve taken hits of £50 to £200 on a month sometimes to get a property full but this short-term approach will ultimately serve you well as the added cashflow (even if it is slightly negative) will ensure that the portfolio as a whole should be cashflow positive.
Top Tip: A lot of landlords now are using the Local Housing Allowance to boost rents because often, they will pay more than a private tenant – such is the demand for social housing now.
Cashflow Strategy 2: Manage Your Expenses
This one is crucial and could make or break you very quic
Every expense needs to be justifiable and beneficial to your long-term aims. It is also worth reviewing all major expenses at least quarterly to investigate what you can reduce.
So, perhaps your long-term aim is to buy 3 properties this year but so far, you’ve only bought one but you’ve been to 4 networking sessions a month. STOP!
Networking is highly beneficial but it needs to be tempered with the right objectives – for instance, I generally allow around £100 in expenses for every networking meeting I attend outside of my immediate local area (20 miles or less) because this is the true cost after mileage, parking, subsistence, networking fee, drinks and kebab on the way home. You get the picture.
So far this year, I’ve saved over £250 per month by switching my utilities to another provider; £50 in subscriptions I never used and another £150 through cutting out some networking sessions/meetings that were not productive.
Top Tip: Set a target for yourself of £100 savings and see how easy it is to reach this figure.
Cashflow Strategy 3: Lease Options
This is another way in which you can release additional cash flow from your properties.
The brilliance of this strategy is that the tenant you are appealing to is somebody that ultimately wishes to purchase the property from you. They are highly unlikely to default, they’ll normally pay over market rent plus they’ll give you a nice deposit of 3-5% of the purchase value when they move in and they’ll pay around 20% every month in additional rent payments towards their deposit.
That attached to their longer-than average tenure (so no voids) together with their willingness to look after and maintain their new home means that this strategy is already starting to be implemented by many savvy investors.
Why This Strategy?
- Larger Deposit
- Above Market Rent
- 20% Additional Rent Payments Towards Deposit
- Long-Term Tenants
Top Tip: Advertise for Rent to Own clients FIRST before going and purchasing a house. This way, you are secure in the knowledge that you have a number of leads that you can offer the property to.
Cashflow Strategy 4: Mixing It Up
Look at ways in which you can mix up the rental income from a particular property that you own or are considering buying. You don’t just have to have one income coming in per property – you could generate multiple incomes from residential and commercial clients.
You can make substantial returns from small shops with flats above them, dividing a larger property into flats, getting planning permission for a corner plot build, renting out garages or parking spaces, providing corporate or short term lets – the list is endless. You just need to sit down and think of some ideas outside of the box.
Here’s one I am currently trailing which is working great. I own a lot of large detached houses with garages. I’ve been renting these out successfully for the last couple of years for people who want to store a classic car, a sought-after motorbike or just general household junk. I’m getting £20 to £40 per month for each garage – it’s not a huge amount but I’ve just increased my yield by up to £480 per year!
Top Tip: Look at any unused space in your property or garden and figure out what you can use it for. We’re considering turning an old out-building into a small flat at the moment.
Cashflow Strategy 5: Sourcing
This is for a time-rich person who can go out there and start doing some deals.
Perhaps you haven’t got the funds to buy right now; perhaps you’ve got a good marketing system going and too many leads to know what to do with them, perhaps you want to build some cash up before you get investing yourself. Either way, sourcing property for other buyers is big business.
You can do this in a number of ways:
- Sell on unqualified leads
- Sell on telephone qualified leads
- Qualify and Package a deal
- Package a deal with “lock-in” agreements and financing
All of these will give you varying levels of fees from £50 up to 3% of the property’s value at the top end. It’s possible to make a very good living just sourcing and passing through deals to other clients.
Top Tip: Focus on one particular type of sourcing and become very good at that. A niche market will always outperform a broad market so keep it focused and the customers will come.
Cashflow Strategy 6: HMO’s
For me, the holy grail of property investing and where the real cashflow returns are always made.
Take a property and rent it out by the room to young professionals. You can expect to double or triple your yield instantly and the good thing is you can even do this on small 3 bed houses.
Let’s look at an example:
3 bed end terrace worth £125,000 with 3 bedrooms (2 doubles, 1 single) and 2 reception rooms.
What I would do is rent out four rooms, keep one aside as a communal area and take rental income of £1472 to £1645 per calendar month. Take approximately £100 per month per tenant on bills and on an average 85% gearing, your monthly cashflow would be £497 to £670 per calendar month!
A lot of people believe that its hassle to run HMO’s and I have two comments on this.
Firstly, is it worth the hassle to take a 3 bed terrace from a 5% to a 16% yield? I think so.
Secondly, it does take some time and effort to set up in the beginning but once you have a HMO running, it’s no more than a couple of hours per week per house.
Top Tip: Buy a 2-storey property with 4 bedrooms and 2 reception rooms giving you 5 bedrooms to play with for less than £200,000 and you will make at least £500 per month minimum.
Property investors have always been in the market for the long run. But why not make great cashflow at the same time? Ignore the negative press, lenders tightening up loans and the testing times ahead.
Instead, work on your cashflow in the next 12 months and keep your properties ticking over, then by the time of the next property boom, you’ll be a very wealthy player.
In the words of Jerry Maguire “show me the money” and the cashflow will keep you going.