Real estate can be a great investment, but finding the perfect rental properties is only half the battle. Once you’ve built a rental portfolio, you have to keep the cash flowing. Here are three of the most common real estate cash killers that can make a good investment quickly go sour.
The 3 Cash Flow Killers to Avoid at All Costs
The most obvious item on the list of real estate cash flow killers is having rental properties sit vacant. This isn’t just an inconvenience; it’s a real hit to your wallet. The entire time your rental home or condo is sitting empty, you aren’t making money — but you’re still on the hook for the mortgage payment, taxes, and insurance.
This is why you have to work hard to quickly fill any vacancies that pop up in your investment property portfolio. You can do this by finding a property in a nice location and providing good customer service that will attract renters and keep them living there for years to come. As you choose, remodel, and maintain a property, always ask yourself if it’s somewhere you would like to live. By putting yourself in the mind of a renter, you’ll be able to create a rental property experience that ensures that your vacancies are always resolved quickly.
2. Not Screening Your Tenants
However, filling vacancies doesn’t mean filling them with just any renter. As you work to ensure that each property is providing a steady monthly rental income, you want to ensure that they’re also not creating additional headaches and expense for you. Choose tenants unwisely and that’s exactly what will happen.
At the best, rent payments from irresponsible tenants will be late or never-coming. This can put your cash flow in a real crunch from month to month. At worst, bad tenants won’t take care of your property like it’s their own, resulting in unusual wear and tear or outright damage. When this happens, you’ll either have to fight them to compensate you for the expense of the repairs (which is unlikely to happen) or pay the money out of pocket.
Once you boot bad tenants out — a battle in and of itself — you’ll be right back to the first of our cash flow killers… another vacancy.
3. Deferred Maintenance
While vacancies and bad tenants are more noticeable real estate cash flow killers, deferred maintenance is is a factor that can silently strike your cash flow and do an incredible amount of damage before you’re aware of it.
Both large and small deferred maintenance items can become problematic. Any number of small items — grass that’s not properly kept up in the front of the property or cracked electrical outlet covers throughout a house, for instance, can send the wrong message and turn off the responsible, good-quality tenants that you want to attract. If you take care of even the little things, this tells potential tenants that you care about their experience and want to provide them with good customer service.
Larger items may not seem problematic at first, but can quickly turn into a financial nightmare. A loose handrail that you put off repairing can result in someone getting injured and filing a lawsuit. A small leak that goes ignored may end up causing untold amounts of water damage. At the end of the day, you still have a leak to repair, but now you have sheetrock and flooring to pull up and replace, as well.
Beware, too, of going the cheap route by applying bandages to problems that need to be surgically removed. If your condo building has an outdated gate in the garage that keeps breaking, it may seem attractive to simply call a technician out to repair the old motor at $300 a visit rather than $2,200 to replace the track and gate motor. Over time, however, those $300 visits will add up and more than exceed the cost of a replacement — not to mention the inconvenience you’re causing your tenants when they can’t get in and out of their garage. For your real estate investments to run smoothly, it depends on having responsibility and focus on both ends of the equation. By providing excellent customer service and keeping up your end of the bargain as far as maintenance, you’ll be able to attract good tenants who will take care of your property — and hopefully help you avoid the most common real estate cash flow killers.