In the business world, cash reigns supreme. You work hard each day to make sure you earn more than youdid the month before. You spend hours thinking of ways to gain more profit while also reducing your expenses. If there is one thing that can make your world happy, that is to have a constant positive cash flow. But what are the things you should know about cash flow, and how can you maximize this?
What Can Hurt Your Cash Flow?
There can be different things that can harm your cash flow. For real estate investors into buy-and-hold investing, the following are the usual things you need to watch out for.
Property Insurance + Taxes
Property taxes can increase each year. How much insurance you will need to buy will depend on your personal needs and situation. It helps to be always on the lookout for better deals every time something changes in your situation.
For instance, you can defer tax liabilities through cost segregation. This allows you to take advantage of accelerated depreciation deductions. If your property qualifies, you can enjoy up to a 40% of cash flow increase.
Now that cost segregation will only work during your early years of owning the property. You can reduce state and federal income tax liability while increasing your tax deductions. You can also take larger deductions on older properties in case of a time lag.
Repairs and Maintenance
One thing many real estate investors don’t like doing but are critical to any investment property is the maintenance and repairs. Even with preventive maintenance measures, there will come a time when repairs will be inevitable. If you don’t prepare for such expenses, your cash flow can instantly take a hit.
Consider saving some of your monthly income and dedicate a portion to your rainy-day funds. This should be used for maintenance and repairs alone. The bigger your savings, the easier it will be for you to cover the expenses associated with maintenance and repairs.
There will be times when you will have vacancies which mean no cash flow coming out of your property. When tenants move out, you won’t simply face vacancies. You can also have to tackle certain repairs and cleaning.
If you are hiring a property management company to take care of your properties, they might charge you a new lease fee. More often than not, this is equivalent to up to a month’s rent of your unit. Your cash flow can also be affected when your tenants stay but fail to pay their dues on time.
What Can Help Fix Your Cash Flow
Some factors can help you improve your cash flow. This goes beyond increasing your rent. Know that just because you need more cash coming in from your properties, you can already increase the rent as you please.
Since turnover and vacancies can impact your cash flow, one way to give it a boost is by taking in long-term tenants. The longer your tenants stay in your rentals, the less vacancy and the lower your tenant turnover rate will be.
There are times when refinancing makes sense. If you have been paying such high interest fees, it only helps to time your plan to refinance. Once the rates are falling, this can be the perfect time to check in with your mortgage lender.
It also helps if you can invest in preventive maintenance. This will allow you to tackle necessary repairs upon the first sign of damage. The more you maintain your properties, the easier it will maintain their condition and value.
In December 2019, a law was signed granting owners of commercial properties along with their tenants a tax deduction for energy-efficient properties. You can enjoy up to $1.280 per square foot for hereby efficient HVAC systems, interior lighting, and building envelopes. This is applicable for newly built buildings as well as leasehold improvements made after 2006.
Eligible improvements are only up until December 31, 2020. Your eligibility for additional incentives and deducti9ons will impact your tax liability. It only makes sense that you check if your properties can leverage such deductions so you can improve your cash flow.
In every type of investment, you should understand the numbers. Understanding what impacts your cash flow will give you a better idea of what to do so that you can effectively improve your finances. This enables you to get the most out of your real estate investments. Get to know more about handling cash flow today, and you will have a better chance of creating financial freedom in your life.