Cash flow is a major factor when calculating whether you've achieved financial independence.
In fact, we know that it is a combination of cash flow and the safe withdrawal rate of your other non-real-estate investments that determines your standard of living.
With that knowledge, let's look at the top 17 ways to improve cash flow on your rental properties.
1. Rent By The Bed/Bedroom
Often renting a house by the bed or the bedroom will allow you to significantly increase the amount of cash flow you're able to get from the property. Many house hackers use this strategy to significantly offset or eliminate their housing costs.
2. Rent Sections Separately
Sometimes your rental property is configured in such a way that you could easily rent out sections like the garage, access to the community pool, or a storage shed separately.
In some cases it may be to the existing tenants for more money, but it could also be to completely different tenants.
You may be able to add additional income sources like a RV in the backyard as a vacation rental to your property to boost income.
3. Add-On Services
Some tenants would prefer not to put utilities or other add-on services in their name. For example, you may choose to pay for high-speed internet and charge an extra fee or higher rent to the tenant for having that included.
Other landlords have included more common utilities like water, sewer, electric as well.
One side benefit of including these in rents is that, in some cases… and check with your lender before assuming it is true with your lender, the lender is able to use 75% of the rent collected to help you qualify for your next loan. That means that including the utilities in with your rent could give you a higher rent and make it easier for you to qualify (at least on paper) for your next loan.
4. Pet Rent
A large percentage of tenants already have or want to have pets. Many landlords charge monthly pet rent and a non-refundable pet fee.
5. Tier Rent By Credit Score and/or Security Deposit
If your written criteria for approving tenants allows you to approve a tenant if they pay a higher security deposit or a higher rent, you're probably already aware of this idea. Here's how it works if you're not already familiar.
Advertise the property with your regular rent for highly qualified tenants (ones with perfect credit and your full security deposit). However, if a tenant that does not have perfect credit, you might still be willing to rent to them, but might require slightly higher monthly rent and/or slightly higher security deposit since they are a slightly higher risk tenant.
6. Change The Term of Your Lease
Rents vary depending on the term of your lease. For example, a year lease might have a lower monthly rent than a month-to-month lease. One way to boost rent is to consider renting your property with shorter terms. Maybe month-to-month, maybe weekly, maybe daily like a vacation home.
Realize you will very likely have more work and turn-over costs with shorter rental periods but you can, in many cases, more than offset that extra work with the extra rent you're able to collect.
7. Charge Weekly or Bi-Weekly
Even with a year-long lease, some tenants may prefer to pay rent weekly or every other week (bi-weekly) instead of monthly.
If rent was $2,000 per month, maybe you charge $1,000 bi-weekly. It may not sound like a big difference, but here's how it works out.
$2,000 Monthly = $2,000 &multiply; 12 months = $24,000 per year.
$1,000 Bi-Weekly = $1,000 &multiply; 26 two-week periods = $26,000 per year.
$500 Weekly = $500 &multiply; 52 weeks = $26,000 per year.
That's an extra $2,000 per year by charging bi-weekly (or weekly) and some tenants would prefer to pay that way (especially if they are paid every week or every two weeks).
8. Include Done-For-You Services
Some tenants don't want to clean the house or do yard work. You could increase rent and roll in the cost of having a house cleaner/landscaper come by once a week.
9. Increase Number of Units
Some single family homes lend themselves to being converted to duplexes: a strategically placed pair of doors on a split level as an example. Other properties could be converted into even more units. I've seen large single-family-homes converted to mini-apartments for students near a university.
Often by increasing the number of units, you can collect more rent overall.
10. Furnished Rentals
Often furnished rentals will rent for considerably more than unfurnished rentals. Consider this niche to improve your cash flow.
11. Market Aggressively, Early and Test Prices
Nothing beats marketing your properties aggressively in as many places as you can for getting top of the market rent. Combine that with starting 90 days before the current lease is set to expire (and no later than 60 days prior to the lease expiring) will give you the confidence to start testing your rental price high and be willing to come down if you're not getting responses as you get closer to the property becoming vacant.
12. Charge For Auto-Pay or Manual-Pay
Some landlords will charge a small additional convenience fee for tenants that want to have their payment auto withdrawn from their bank account each month. Often this includes a very small premium over the actual cost of the service meaning you get a tiny bump in rent.
On the completely opposite, other hand, some landlords will charge a manual processing fee for those NOT on auto-pay if they need to collect and process a check from a tenant.
13. Schedule Leases To End During Peak Rental Season
One way to ensure you're getting maximum rent is to make sure that your leases end during the peak rental season. Have a lease end on Thanksgiving is just setting yourself up for below market rents. In many markets the peak rental season is the spring (May/June) but it may be different in your area.
If you acquire a property off-season or find yourself with a vacant unit off-season, be sure to offer either a shorter-lease or a longer-lease to get the tenant back on the peak rental cycle. Don't just default to 1-year leases unless you're renting during the peak rental cycle.
14. Target More Profitable Niches
Consider targeting profitable niches like corporate rentals where you can collect higher rents than what a local might be willing to pay.
15. Discounts For On-Time or Early Rent
Reward good behavior: if you advertise your property for $1,500 per month rent, your lease might say rent is actually $1,600 but includes a $100 discount for on-time or early payments. As long as the tenant is paying before the 2nd of the month, they get a $100 discount.
You might consider this in lieu of late fees.
16. Solar Panels and Include Electric in Base Rent
Consider installing solar panels and then bump up rent to include electricity.
17. HOA Services Bill Back
Some Home-owner's Associations (HOAs) include things like trash service, non-potable water for watering the lawn, basic cable, snow removal, etc. Considering billing back the tenant for these services.
Bonus #1. Lease-Options
If you're willing to sell your properties, consider offering your properties for sale on a lease-option or lease-purchase. These strategies have your tenant become a tenant who has the right to buy the property from you.
This gives you several advantages.
The first advantage is you are typically able to collect an up-front option fee. If you mentally spread out the option fee across the term of the lease, this means you're getting much better cash flow on the property. For example, if you are able to collect $2,400 as non-refundable option fee from a tenant-buyer with a 1-year lease with an option to buy in that same year, that's really like getting an extra $200 per month in rent. Except, you get the full $200 per month times 12 months all up-front at the time they sign the lease.
Another advantage is that you're typically able to charge a slightly higher rent than a renter would pay. If you're rent was $1,500 per month, you might be able to get $1,600 or more for rent to a tenant-buyer. This extra income may help you qualify for future loans a bit easier. This is especially helpful if your rental does not have amazing cash flow to start with.
Bonus #2. Buy Less Expensive Properties
Master of the obvious here, but if you buy less expensive properties this often means you're borrowing less money. Borrowing less money usually means your monthly payment is lower. And, if you can get the same rent but buy a less expensive property, you're going to improve your cash flow.
Sometimes this means finding lower cost properties in your market. Other times it means investing in a market that is not local to you (long-distance investing).
You may be tempted to buy properties that need work to find less expensive properties. Be careful: you may end up investing money in fixing up the property and while your cash flow may be better, you need to account for the extra fix up money (and your time to fix up the property) in your analysis to make sure this makes sense. One variation of this is the BRRRR strategy.
Get More Info on Improving Your Rental Property Cash Flow
Think about cash flow as resulting from two things: minimizing expenses and maximizing income on your rentals. If it really is that simple, then we can systematically work on both sides.
First, reduce your expenses. Check out my Lowest Monthly Payment When Buying class to minimize the largest part of your expenses on your property (if you're going to get a mortgage).
Next, maximize your income using the tips above.