Two Ways to Increase Cash Flow on Your Rentals

Money in HouseWe joke in the office once every four weeks or so about how much we love the first week of each month.  The rent comes in and our bank accounts get larger.  It is such a great feeling to know that you are making money each month without much, or any effort.   That is one of the reasons I love investing in real estate.  Another reason, which is often overlooked, is that you can actually get creative and give yourself a raise.  Do you know of another investment where you can increase your monthly cash flow based primarily on simple actions you personally can take?  Here are two ways to increase your cash flow on your rentals.

Washer and Dryer:  I learned this one early on.  I often purchased nice homes in good areas using a lease option or subject to.  It was not uncommon for me to get washer/dryer sets or other additional appliances with the purchase.  A freezer in the basement, or an additional fridge in the garage were also common.   Not to mention yard tools like mowers and trimmers.  None of these are expected in a rental or a rent to own home, but if they are there it is assumed they are part of the rental agreement.  This will hurt your cash flow.  If the washer goes out, who is responsible to fix it?  Let me tell you there are no appliances that go out more than washers and dryers, except maybe garbage disposals.   If your unit does have a washer and dryer, I think you are best to either take it out of the unit and sell it on Craigslist, or give it to the tenant when they move in. I would say something like this, “as you can see this unit has a washer and dryer.  These were left over from the previous resident.  I can take them out of here if you would like, otherwise you can have them. ”  When they say they want them you say, “That is fine, but you understand they are yours now.  What does that mean if they break down?”  They will not call you when you ask them this question.Washer and Dryer

Another option, of course, is to charge them a separate rent for those.  I have tried that once and it did not work so well.  When the washer went out, like they always seem to, it cost me more money to replace it than I received in rent.  With that said, it is certainly worth a try to rent them separately if you can.

Month to Month Leases:  I like a month to month lease a lot.  The reason is that long term leases generally protect the residents more than the owners.  If you get a bad resident, it could be hard to get them out and it is not usually possible to raise rent.  Raising the rent happens to be a great way to give yourself a raise. With a month to month lease, I can raise rent whenever I want.   It is pretty simple to do this and make the resident feel good about it, so don’t ever be afraid to raise rent when you can.  Here is a strategy to use with your month to month lease.

Send the resident a letter telling them how much you appreciate them and you ask if there is anything you can do to make living in your property more comfortable.  Then you will want to tell them in the letter that costs and rents have been going up, and that you need to raise the rent.  For this example, let’s say you want to raise the rent $50 a month, which is typically not enough for them to move, but is a nice increase in income from you.  In the letter, you will raise the rent by $100 a month.  In another paragraph, you will mention that although raising rent is necessary, you understand that $100 is a lot and it is not always easy for the resident to handle.  You will go on to say that you are willing to work with them, and if they think it is too much and to please call your office to discuss.

Shaking HandsWhen you send a letter like that, about half of them will stay and pay the $100 a month increase, which is better than what you wanted.  The other half will call you to discuss.  When they call, you can say that you completely understand and ask what will work for them.  Typically they will cut the rent in half to the $50, but if they don’t, you can always ask if there is a fair middle ground (which of course is almost always in the middle).  In both cases, the rent increase will be $50 a month, which is right where you wanted to be, and it will have been their idea so they are happy about it.   Trust me, this strategy works great and your resident will love how flexible and easy to work with you are.