Yikes! You’ve fallen into the rabbit hole of real estate; you have negative cash flow properties. The ultimate goal of an investment property is to create the opposite, to have positive cash flow properties. In simple terms, a positive cash flow is when you are earning more than you are spending on a property. A negative cash flow is when your rental income is lower than the cost of your expenses. But hey, if you do have negative cash flow on a property, it’s not the end of the world. Here are some ways to deal with negative cash flow properties.
Related: How to Tell if a Rental Property is a Good Idea
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Try a Different Rental Strategy
Sometimes the reason investors end up with negative cash flow properties is that they’d opted for a real estate investment strategy that isn’t suitable for their area or property. In that case, it’s time to try something new.
Instead of going with a usual long-term lease, try to rent short-term. If the property is near a college or university, business district, airport, or a hospital, then this a strategy you should pursue. Potential tenants in these areas will want to rent short-term. For example, college students tend to rent for one semester at a time. Most travelling business employees prefer to stay in a short-term rental than a hotel, as they get the ‘home-away-from-home’ vibe. Short-term leases tend to charge higher rent per an amount of time than long-term ones. This will help turn your negative cash flow to positive.
Not interested in renting traditionally? Then try out Airbnb. By renting on Airbnb, your property will function as a vacation rental, and interested guests can view your property online. There are many, many perks of renting through Airbnb, but let’s stick to our purpose of negative cash flow. By being an Airbnb host, you’ll earn rent on a nightly basis, which results in higher returns than a typical traditional rental. Renting through Airbnb could be the difference maker in creating lucrative positive cash flow properties.
Related: Why invest in an Airbnb investment property over a traditional?
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Review and Fix What Went Wrong
Obviously, something went wrong with your business plan. Take a look at your situation and analyze what had gone wrong. Were your costs underestimated? Were they overestimated? Did the property have high vacancies? Was the property lacking renovations and functionality? Was the property doomed to fail due to a poor location or structure? Properly managing the property and its expenses is key to a successful and gainful property. Discover what lead to negative cash flow in the first place. Remember, the first step to eliminating a problem is to find out what it is.
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Use Smart Data
In this kind of situation, you’re probably telling yourself “if only I could’ve seen the future of my property”. Well, you can! Almost. The closest thing to predicting the future of your property is to use predictive analytics.
What exactly is predictive analytics? It’s basically data that uses past trends to predict the future of properties. It gives investors an idea of what kind of investment they’re in for.
Related: How Data Makes Real Estate Investors Rich: A Mini Guide
Mashvisor’s calculations are all based on up-to-date predictive analytics. This will help you flip your negative cash flow properties to positive ones in multiple ways. You’ll know how much you could earn, if the market is suitable, which strategy to follow, and much more.
That’s not the only way Mashvisor can resolve your negative cash flow quagmire. You could analyze your cost projections by listing and breaking down your expenses. This is a strong indicator of potential cash flow. To avoid vacancies, which are a common cause of negative cash flow, you can learn what to do to optimize occupancy rates.
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Try a Rent-to-Own
You could also decide to provide a rent-to-own for your tenants. This is another viable solution to the problem of negative cash flow properties. Essentially, a tenant pays small deposits which are credited back at the time of the purchase. Also, the tenant continues to pay rent in addition to an amount that the two parties agree upon. The additional amount is also credited back to the tenant. The process may take between one to five years.
Both parties benefit from this kind of deal. Tenants who aren’t qualified for mortgages are able to buy a property. There are also benefits to an investor who wants to fix negative cash flow properties. The investor receives money from the deposits, occupancy rates remain constant as the tenant continues to pay rent, and maintenance is decreased since the tenant is now operating the rental as their future home. All in all, an investor receives higher cash flow. If you want to pursue this strategy, make sure your tenant is qualified for payments and rent. Screen them meticulously.
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Charge for Special Amenities and Renovate
As a real estate investor, you should milk every buck could possibly earn, within reason, of course. This could a be a solution to negative cash flow properties. If your property offers a special amenity, such as a swimming pool or outdoor space, then charge extra. This will increase your rent, slowly healing the negative cash flow. You could even rent separate spaces, like garages, to non-tenants to boost your rent.
Renovations also increase your property’s value, leading to a higher rent. Adding an extra bathroom or bedroom will definitely warrant more pay.
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Keep it Cool With Your Tenants
No need to over-complicate this one. Have good relations with your tenants. As previously mentioned, a common cause of negative cash flow properties is high vacancies. A friendly rapport will most likely keep your tenants at your properties, unless they are forced to relocate due to job or study conditions. This will lead to high occupancy rates, preventing negative cash flow. Why would they want to leave if they had such a great landlord?
With these steps, you’ll turn your garbage into gold. To find top-notch properties with positive cash flow, start your property search at Mashvisor.