Whether you’re running a real estate business or a seasoned investor, having a good idea of income, expenses, and rental analysis will definitely work in your advantage. Having a strong grip on these helps you understand cash flow, which is essential in real estate accounting.
If you’re looking to make a profitable investment, which we’re sure you are, then it’s important to see the full picture of your investment. We’ve compiled a list of major cash flow killers in your real estate investment, and what you can do about them.
1. Vacant Properties
Vacant properties are never a good sign. They’re extremely negative for your investment. If you don’t have a tenant occupying your property, the burden of paying the taxes, mortgage, insurance, repairs, etc. falls completely on you. With increased occupancy, you’ll be able to manage paying expenses easily at the end of every month.
So how you increase occupancy? Make sure your property is desirable and offer good customer service to potential renters. For existing renters, build a housing atmosphere that is friendly, happy and community-based to ensure long-term tenants. Minimize the time your property generates zero income.
2. Bad Tenants
Bad tenants can make the biggest dent in your real estate investment. It’s not enough to make sure you have occupancy, you need to evaluate your potential renter. Get a property manager to screen potential renters for criminal background, eviction history, credit report, etc. This screening process package will cost you 20-30 USD, but it’s the best way to avoid risks associated unqualified renters.
By not running a background check on your renters, you risk damage to your property, late or non-payment, and danger to your other tenants and neighbourhood. As a result of these, when you try to evict that unqualified renter, you will find yourself in the middle of a lengthy and expensive eviction process with lots of paperwork and legal proceedings.
3. Wrong Insurance
Although you’re renting out your property to tenants, you are under the obligation of insuring your property. Spend some time understanding the different kind of property insurances. Know that insurance for owing a rental property is different from homeowners insurance. As a landlord, your policy should cover your property as well as liability.
While considering insurance, don’t forget to consider natural calamities like wildfire, hurricane, etc. based on where your property is located. Otherwise, you’ll be under such accident coverage and reconstruction coverage will be completely on you.
4. Late Payments & Non-Payments
Long-term late payments from your tenants can affect your ability to run the property. While it is important to build an open and warm relationship with your tenants, equally important is to predefine your payment policy. Tell them the last date till which they can pay the rent. Make sure your tenant is aware that regular late payments are unacceptable.
While it’s important to clarify your stance on payments, certain situations like the coronavirus pandemic and jobs losses around it can lead to exceptional cases. You must prepare for long months of non-payment so that you don’t risk losing your property.
How do you do that? Know your numbers. Be mindful of the threshold below which you cannot fall. Keep track of your payments and financial situation. When you close a big sale, don’t withdraw all the money and spend it on yourself. Keep some for the business to run in a healthy way for 3 months. Plan for an unexpected dry spell.
5. Bad Management
Bad management can crush your business. On the other hand, valuable relationships with your tenants can take your business farther. If you’ve hired a property manager, make sure you review them regularly. Are they creating a negative experience for your tenant? Do you see an increase in the vacancy rate? Is there a high tenant turnover? How soon does your manager respond to repair requests?
Ensure your management terms are clear before you hire this person. You don’t want anybody mishandling your investment and costing you more in the long run.
If you’re not focused on your cash flow, you’ll soon find yourself in a risky rental situation. Is your accountant looking into these factors to improve the cash flow? If you don’t have an account, you should take into consideration these cash flow killers and assess your business. Talk to our experts today to make your real estate investment more profitable.
At BMC SAAS, we are proficient in providing 360-degree accounting services to clients around the world. BMC SAAS will take care of all your accounting frustrations so you can focus on what you love. To learn more about how BMC SAAS can help your business, contact us about your business requirements.
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