You hear the term all the time. After all, it’s an essential concept for apartment investors because it not only reflects the viability of your investment but also its value.
But what really is cash flow? How do you compute it, and more importantly, how can you increase the cash flow of your multifamily property?
Cash flow is simply the money that moves in and out of your business. For apartments, the cash coming in is in the form of rent, and the cash flowing out is in the form of expenditures like property taxes and utilities.
Cash flow – or lack of it — is one of the primary reasons businesses, or real estate investments, fail. Without sufficient cash flow, you’ll run out of money. That’s why it’s essential that you have sufficient capital to not only purchase an apartment property but also sustain it in the event that cash flow fails to be what you projected – for example, if units turn over more often than you expect or rents decline.
Here are some ways you can improve the cash flow of your apartment investment:
- Increase rents. This is perhaps the fastest and easiest way to improve cash flow. Consider repositioning the property – investing some capital to improve the units and then bumping rents.
- Reduce utility costs. Fix leaky shower heads and faucets, which waste water. Install energy-efficient appliances and lighting fixtures.
- Decrease expenses. Renegotiate your property management contract, or put it out to bid at the end of the term. Use free rental property listing sites rather than paying a broker to rent apartments.
- Encourage residents to stay. Moveouts are expensive, so when tenants renew their leases you’ll save time and money on prepping the unit.
- Add additional streams of revenue, such as pet deposits and rent, garage rentals, vending machines or valet trash.