Six Ways to Increase the Cashflow on a Rental Property

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You have found a GREAT property in your target market area. It fits all of your criteria but the cashflow numbers are tight … should you walk away? Or, is there something you can do to increase the cashflow and make the property work for you?

While we would never recommend you buy any property without positive cashflow, there are times when you may want to buy a property that is tight.

For us, we have a couple of properties that we bought for such a great price, knowing that they’d be high value properties in the future, that we were ok with the fact that the cashflow was tight. We also have one property that we bought with plans to develop it in the future. It barely cashflows but we have future plans for it that would boost it’s value and it’s income.

It’s not ideal to have an entire portfolio of properties that are like that because it guarantees you’ll be pulling money out of your pocket to pay for repairs and upgrades in the future. Certainly for us, it really only works because it is just a few properties in our portfolio that are like that. But, you might be in a market where tight cashflow is the norm and you’re just finding ways to make it work … or you might be faced with opportunities to buy massively under market value or hold for development like we have found in the past.

Whatever the reason you’re considering a tight cashflow property, you do have a few options to improve your situation and increase the cashflow right from the start. (And if you’re not sure how to calculate your cashflow … start here and then come back to this).

Here are six suggestions to increase the cashflow on a rental property:

1. Increasing Rents

It might seem obvious but a lot of times tenants haven’t had an increase in their rent in quite awhile. If the tenants are paying under market rents, you might have the option of raising their rents. Of course, if you’re in a province with rent controls, or the rent has already been increased recently, this might not be an option.

Even if you can do it, keep in mind that a large increase may cause them to move out, or just be unhappy tenants that damage your property.

2. Add Income from Other Sources

Things like adding storage, parking and even selling advertising space can be used to increase rents, add a new rental stream or just reduce expenses. We have a few coaching clients who put solar panels on the home for an additional income source as well. Sometimes a little creativity goes a long way.

3. Pay Less for the Property

One of the conditions we put on every offer is that the deal is subject to an inspection. This means the vendor has to give us access to the property within a reasonable amount of time to complete an inspection.

What that inspection reveals can be used as leverage to reduce the purchase price. Basically, if the inspector comes back and tells you that the roof needs replacing or that the wiring is outdated, you can go back to the vendor and ask for a price reduction because of the work you are going to have to do. Sometimes the vendor will offer to get the work done, but our preference would ALWAYS be to get it done ourselves.

Think about it—the vendor could hire their Uncle Joe to do the roof. If it starts leaking in six months, they aren’t living there anymore. But, if you get the roof replaced and it starts leaking you can chase down the company that did it and get it fixed.

As long as what comes back from the inspector is not something that makes you want to walk away from the deal, then you can use it to reduce the purchase price. Of course, if you’re in a hot market, opening the deal back up because of something that came up on the inspection may not be a wise move. You could lose the deal to someone who is happy to pay what you’re paying, even with the issues.

4. Reduce Other Expenses

Your biggest cost relates to your financing. Spend the time to research your options and find the best financing options available to you. Lower rate and longer amortization periods will increase the cashflow. Beyond that, simple things that reduce maintenance costs or energy costs if you pay them will all save you money over the long term. While you likely won’t be able to charge the utilities to your tenants if they are not currently paying for them (as per their Lease), when their lease comes due or you place new tenants, put in your Lease Agreement that the tenant(s) is responsible for heat and hydro/electricity. You may have to drop your rent a tiny bit to do this, but then you no longer have to worry about expensive heating costs in the winter as your tenants will have to pay!

5. Put Up a Larger Down Payment

It’s not always an easy solution for many investors, but one of the options to boost your cashflow is to increase the amount of money you put down because it reduces your financing costs. High ratio mortgages also have a lot of additional fees associated with them, so getting out of that category saves a lot of money each month right from the start.

6. Allow Pets

I know I know, pets can cause damage and problems and pee on your new carpet. Yes, it can cost you. I discussed my take on whether you should make your rental pet friendly right here. But, if you are very selective about who your tenants are and you include in your Lease Agreement that they are responsible for keeping the premises inside and outside of your rental unit in good condition, then this is a great way to increase rent and/or cashflow.

MOST apartment buildings don’t allow pets (or they restrict the size of pet) and only a small percentage of Landlord’s out there allow pets. So, how does that help you increase your cashflow? Because you are providing a service (allowing pets) that is in great demand and tenants with pets are generally willing to pay more to keep their loyal companions with them!

It’s easy to let fear or excitement guide you when you’re investing. This list is not to suggest that you should buy very many properties where cashflow is negative or even tight. That’s a losing strategy over time because the fact is, even cashflow positive properties sometimes need you to spend money on them. As I wrote about in More than Cashflow, all houses will need work … and the longer you hold them, the more work they need. Single family homes are a great investment because of the liquidity, the mortgage pay down which builds your wealth and, over time, the appreciation. However, you will eventually need to put money into them so you don’t want to buy one that needs feeding right from the start. But, at least with this list, you have a few more options to make it cashflow from the first day you own it.

Not sure where to start to find or analyze your deals? Summer School – taking you from Rookie to Rock Solid Real Estate Investor in 7 Weeks Flat is a great way to get started as a real estate investor.


Send Us A Message

If you have questions about points raised in this post, or if you’d like to learn more, then send us a message and we’ll get back to you as soon as we can.

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