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In real estate investing, cash flow is the amount of money you have left after deducting all expenses from your income each month. In concrete terms, these various expenses include monthly payments, taxes, insurance costs, management fees and all other charges related to your property. Revenue is mainly made up of rents and re-invoiced charges. Depending on the case, the cash flow can be negative, zero or positive.
When you aim to generate money from your real estate investments beyond the assets you accumulate, you should aim for positive cash flow. A positive cash flow will allow you to accumulate cash in order to continue investing. Making money with your real estate goes beyond acquisition, but it requires a strategic vision to allow you to optimize your investments. To achieve this, there are several techniques you can use.
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1. Buy low
The price of the property is an important variable in determining the profitability of your project. The lower the price, the less you will pay in credit. It is therefore important to negotiate the price of your property as soon as it is purchased. Always keep in mind that you make money when you buy, but not when you sell your property. Many investors tell themselves that in 10 years, the property they have acquired will be worth such and such a sum, and they do not think of negotiating its price.
However, no one can be sure what will happen in 10 years in the real estate market. The negotiation must take place at the time of purchase, before signing. To determine the correct price for a property, find out the market price and negotiate below that price. At the very least, you will get your property at market price. Note that sellers generally expect a negotiation, and that they leave themselves a margin by announcing a higher price. Saving even $1,000 off the advertised price can have a cash flow impact on your real estate project.
2. Negotiate loan terms
Monthly payments are among the highest expenses. By negotiating the terms of your home loan, you can get better loan terms, and you can also reduce repayment expenses. Certain elements, such as the loan rate, loan insurance rate, application fees and prepayment penalties, can be negotiated with your banker. If borrowing rates drop, it is also possible to refinance your loan. This technique allows you to obtain a lower rate than your current rate and reduce your monthly payments.
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3. Raise the rent
Raising the rent allows you to increase your income. However, this increase must be reasonable in order to avoid rental vacancy. Staying within market prices is essential. There are several strategies you can use to raise the rent on your property. The first strategy is to improve the comfort of your property through small renovations, such as decorating certain rooms or installing equipment, such as an intercom or a security system.
There is also the possibility of investing in furnishings and moving into a furnished rental, taking into account the applicable tax regime depending on the region in which you are located. A furnished property is generally more expensive than an unfurnished property. Similarly, vacation rentals like Airbnb are generally more profitable than traditional rentals. For better profitability, it is possible to mix these different strategies.
4. Create other sources of income
Apart from renting your property, you can create other activities to increase your income. For example, you can set up a launderette on your property, a bicycle storage room or a wine cellar. These different arrangements offer additional comfort to the tenants of your property, and at the same time, they allow you to generate more income.
5. Reduce costs
This technique allows you to reduce your expenses. To do this, it is necessary to identify the highest expenditure items and reduce them. You can intervene on the rental charges not re-invoiced to the tenant. This can be heating, electricity or internet. It is also important to compare prices when choosing a craftsman for repairs, because the expenses generated by the work impact the amount of your cash flow. If you have a condominium, you must also be vigilant about the condominium fees, which can increase.
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6. Avoid turnover
The rental vacancy has a direct impact on the cash flow of your property, because it considerably reduces your income. In addition, each time a tenant leaves the property you are renting, you must plan for certain repair and renovation costs, which will put a strain on your cash flow. Thus, the idea is to retain the quality tenants who occupy your property in order to maintain a constant level of income.
To do this, you must rely on a quality service in order to better position yourself in the market. This is manifested by the use of quality and durable materials to ensure the comfort of tenants or by maintaining a good relationship with them. Always keep in mind that when tenants feel special and welcome, they are more likely to stay in the property.