Investing in rental properties can be a very profitable business. Not always when you start out, but in the long-run that is the objective. However, if you want to be profitable from the get go – on positively geared properties – the key is cash flow.
Ask any business owner about their day-to-day headaches and most of them would mention cash flow at some point. They may have money coming in, but if it’s all in January, it makes it difficult to survive the rest of the year. The same goes for owning investment properties. If you don’t have the income (rent) coming in on regular days throughout the year, it will make it difficult to cover your expenses.
What can you do to ensure your cash flow is always coming in?
Set up an AP
You’d be surprised to learn that there are landlords out there in this day and age who still don’t collect rent via internet banking. Make it easy on yourself and make technology work for you. Get your tenants to set up an automatic payment from their bank to yours. Then it is done and you can forget about it (unless they don’t have funds available to pay the AP), but at least you know for the most part, you will get your rent money every week or month.
Do your due diligence and check up on tenants before letting them move in. Check their work history and previous landlords – make sure they are reliable tenants. The more time you spend in this phase, the easier your life will be in the future.
Determine the specifics
Include all the details in your contract. How much will they pay, when will they pay, what will the penalties be for not paying and when you would be forced to get the tenancy tribunal involved. Lay it out in the beginning. Go through each and every point out loud from the rental agreement. Don’t just say: “Read and sign it” and hope that they read the fine print.
Be a good Landlord
Follow up maintenance and repairs requests in a timely manner. Always be courteous and respectful to your tenants. If you treat your tenants as valued customers, they will (hopefully) treat you with the same respect.
Enforce the rules
You may like your tenants, but that is no excuse when it comes to enforcing the rules. The contract states they will have to pay a penalty fee if they are 5 days late – so bill them. The sooner they know you’re serious, the better for everyone. But before jumping to conclusions, talk with them. You never know what’s being going on in their lives: there may have been a death, an illness or some other unforeseeable issue that understandably made life difficult. Be firm but fair.
Reward good tenants
On the flip side, it’s nice to reward good behavior. If your tenants have been fantastic consider rewarding them in some way. It could be bringing the date forward on some property improvements, a Christmas gift or a voucher to the local pizza place. However you do it, make sure the good tenants are rewarded so they will continue to pay their rent on time – allowing you regular cash-flow.
What other things can you do to ensure regular cash flow?