Monday, January 13, 2014

11 Ways to Turn Negative Cash Flow Real Estate Into Positive

SOME INVESTORS BUYING REAL ESTATE TODAY find that many properties they look at have a Negative Cash Flow (NCF). This means you have to pay out more money than comes in. For example, a multifamily apartment house with a monthly income of $10,000 and expenses of $10,500 has a $500/month NCF.

TO MAKE THIS BUILDING PROFITABLE, you'd have to (a) reduce your monthly expenses by $500 or more, or (b) increase your monthly income by $500 or more. You can do this in multiple ways. Here are 11 actions you can take:
1. Raise the rent for each apartment in your building. Doing so will increase your income, help to pay your expenses, and reduce your NCF to zero. Figure how much you'll have raise each rent to increase your monthly income by $500.
2. Increase the rent for new tenants. It's easier to get a higher rent BEFORE new tenants move in than after.
3. Reduce your monthly mortgage payment by getting the term of your loan extended from 15 years to 25 or 30 years. This will reduce your monthly mortgage payments, lowering your expenses to wipe out your NCF.
4. Negotiate a lower interest rate on the first mortgage to reduce your monthly costs. Thus, reducing the interest rate by 1% on a $300,000 first mortgage will save you $300 per month in interest costs.
5. Convert your first mortgage loan to an interest-only loan. This will again reduce your monthly payment. You'll repay the principal in the form of a "balloon" at the end of the loan term or when you sell the property.
6. Have the real estate taxes reduced or temporarily suspended. Do this by visiting the local tax board and presenting your case to them. Contact your county or city government for help. The worst they can say is no.
7. Reduce your operating expenses by cutting costs. For example, get a part-time manager instead of a full-time one or collect the rents yourself instead of paying a management firm. Look for additional operating expenses you might be able to reduce, such as advertising, cleaning, landscaping, supplies, telephone, trash, etc.
8. Get your tenants to pay for utilities such as heating, water, electric or gas. This will save you big bucks and reduce your NCF.
9. Make two, or more, income units from one. This can nearly double your income from the area occupied by one unit.
10. Consider charging parking fees. These fees are not uncommon nowadays.
11. Increase your security charge from 1 month to 2 or 3 months. This will give you more cash and higher interest earnings on it.
For more real estate tips and methods, visit the International Wealth Success Website.

No comments: