How to Make Properties Cash Flow Positive

by : Karen Wheller

With increase in interest rates and tightening credit from lenders, investors must start to look at how to make more money from their current investment properties. Optimizing the portfolio has never been more important than in the current economic climate.

Many investors will agree that cash flow is the secret to successful investing. Whether it is a property or business, the key to success is to have a strong grip on your cash flow situation. Interest rate increases, like the ones we have recently experienced, can significantly eat into the cash flow. Many people think that one needs to amass great sums of money to build wealth, but building a strong inflow of cash can also bring about financial freedom without having piles of cash.

The trick is not to focus on all the debt, but to build your strategies around cash flow. It is highly evident that many investors don't know what to do in order to generate positive cash flow from an investment property. By asking yourself 'How do I make money from an investment property I already own?' you will come to the conclusion that you need to generate more income or you need to reduce your expenses on that particular property.

How to Reduce Expenses on a Property

* Your biggest expense will be the monthly instalment that you have to pay the Bank. By extending the Bond over a longer period (like 30 years), you will reduce your monthly instalment. Don't focus on the extra interest that you have to repay, it is the tenant that repay's it for you.
* Negotiate a better interest rate with your bank. Normally when you extend the bond period to 30 years they are more than willing to drop the rate. In the process, negotiate a discount with the lawyer (up to 20% is normal, some investors get no less than 30%).
* Do your own management on your rental properties. It is a simple exercise of monitoring your bank account to see that the money has been deposited. Especially if you only starting out with a few properties. Once you have a strong, positive cash flow and enough properties, consider using an agent.

How to Increase Income on a Property

* The easiest is to have a rental escalation clause in your lease Contract. Normal escalations are 8 - 10% p.a.
* Consider converting a storeroom or double garage into a granny flat. Having more than one tenant on one property can generate substantial cash flow.
* Considering adding a granny flat if possible. It can be FAR cheaper than buying a new small flat.
* See if you can subdivide the land. Either to sell the divided part or to build a second unit on.
* Have you ever bothered to ask your tenant what he would like? A second carport or security gate can generate more income.
* Look at the security of the property. Can you add more security to increase the rent (e.g. burglar bars, alarms, etc)? If you don't know, ask the tenant if such additions would add value.
* You can change the nature of the property? Rezone farming land for residential use or changing residential to business rights can be most rewarding.
* By adding additional businesses to you student housing like a Laundromat facility, games room with coin operated pool tables or put vending machines that sell sodas or sweets you can generate additional income. This will also make your property more appealing in comparison with the one next door.
* Convert a 4 bed 2 bath house into two 2 bed apartments. Not only will it generate more income but you reduce your risk as well.

By combining some of these ideas can easily make you property go positive. Also take note of what to look for when you buy your next property. The more space you have, the more options to consider. Each property has unique opportunities like extra space, additional buildings or it might be the ideal location. It is your job as an investor to identify the opportunities that others don't see. Use your imagination to see with your mind and not only with your eye's. In the mean time, with all the interest rate increases, exercise your imagination on your current property investments.