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In real estate investing, the cash flow is the amount of money you have left over after deducting all your expenses from your income each month. Specifically, these different expenses include monthly payments, taxes, insurance costs, management fees, and all other charges related to your property. Revenue consists primarily of rented and billed expenses. Depending on the case, the cash flow can be negative, zero, or positive.
When you aim to generate money from your real estate investments beyond the assets you accumulate, you should aim for a positive cash flow. A positive cash flow will allow you to accumulate cash to continue investing. Making money with your real estate goes beyond acquisition, but it requires a strategic vision that allows you to optimize your investments. There are several techniques you can use to achieve this.
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1. Buy at a low price
Property price is an important variable in determining the profitability of your project. The lower the price, the less you will pay on credit. Therefore, it is important to negotiate the price of your property as soon as you buy it. Always keep in mind that you earn money at the time of purchase, but not when you resell your property. Many investors say that in 10 years the property they have bought will be worth this or that amount, and they do not think about negotiating the price.
However, no one can be sure what will happen in 10 years in the real estate market. Negotiation must take place at the time of purchase, before signing. To determine the correct price for a property, find out the market price and trade below that price. At the very least, you will get your property at market price. Keep in mind that sellers often expect a bargain and leave a margin by announcing a higher price. Saving even $ 1,000 in the advertised price can have an impact on the cash flow of your real estate project.
2. Negotiation of loan terms
Monthly payments are among the highest expenses. By negotiating the terms of your home loan, you can get better loan terms and also reduce the cost of repayments. Some items, such as loan rate, loan insurance rate, application fees, and early repayment penalties, can be negotiated with your banker. If your interest rates are falling, it is also possible to refinance your loan. This technique allows you to get a lower rate than your current rate and reduce your monthly payments.
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3. Increase in rent
Increasing your rent allows you to increase your income. However, this increase must be reasonable to avoid rental vacancies. Staying within market prices is essential. There are several strategies you can use to increase the rent on your property. The first strategy is to improve the comfort of your property through small-scale renovations, such as the decoration of some rooms or the installation of equipment, such as an intercom or a security system.
There is also the option of investing in furniture and moving to a furnished rental property, taking into account the tax provisions that apply, depending on the region where you are located. A furnished property is usually more expensive than an unfurnished one. Similarly, seasonal rentals like Airbnb are generally more profitable than traditional rentals. For better profitability, it is possible to combine these different strategies.
4. Creation of other sources of income
In addition to renting your property, you can create other activities to increase your income. For example, you can build a laundry on your property, a bicycle storage area or a wine cellar. These various amenities offer additional convenience to the tenants of your property and at the same time allow you to generate more income.
5. Cost reduction
This technique allows you to reduce your expenses. To do this, you need to identify the highest spending items and reduce them. You can take action on rent charges that are not billed to the tenant. This could be heating, electricity or the internet. It is also important to compare prices when choosing a craftsman for repairs, as the cost of the work affects the amount of your cash flow. If you own a condominium, you should also be aware of condominium expenses, which may increase.
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6. Avoid losses
The rental vacancy has a direct impact on the cash flow of your property, as it significantly reduces your income. In addition, each time a tenant leaves the property you are renting, you need to plan for some repair and renovation costs, which will jeopardize your cash flow. So the idea is to retain the quality tenants who occupy your property in order to maintain a steady level of income.
To do this, you need to rely on a high quality service in order to better position yourself in the market. This is manifested in the use of quality and durable materials in order to ensure the comfort of the tenants or by maintaining a good relationship with these tenants. Always keep in mind that when tenants feel special and welcome, they are more likely to stay on the property.