Thirdly it is held for potential investment purposes. A cash reserve should be available for these unforeseen problems – this can be actual cash, or a flexible mortgage or overdraft, but must be available. This is the area that usually is forgotten by investors. Secondly, it is held as a precautionary measure for unanticipated problems. This usually involves selling an asset, at a price below its value, as you are desperate for cash short term to support your property investing business overall.įirstly it is used for meeting normal cash obligations such as paying mortgages, buying costs, development costs and covering voids. However if this runs out you can be left with difficult decisions that are forced onto you by poor planning. You then are looking to borrow cash, either through loans, or overdrafts at less acceptable interest rates. I know how tempting it can be to overstretch yourself and put all your liquid cash into assets – and then due to an unexpected, or more likely unplanned for, poorly performing asset, find yourself over budget and desperate for cash short term. So I would suggest, the most important aspect of planning, for a property investor, is not expected capital growth, historic data, cost of borrowing, or yields but is effective cash flow management.įailure to properly plan cash flow is one of the leading causes for failure. This can include interest rate changes, economic changes or market sentiment changing, as well as changes in your personal life which you may not immediately associate with your property investing – such as promotion at work, or worse, being made redundant, or having children which can all make big changes to your cashflow as a whole. Property investors must try and plan and prepare for all potential future events and market changes. This may seem obvious, however it is very easy to buy assets, and then realize you do not have enough money coming in each month – which can leave you in a very difficult position. The reality is that without cash, you won’t last very long. It is crucial to always be aware of how important cash is when running a business – which property investing is. However this investor did not have this, and he ended up being forced to go back to work, and selling a couple of these low yielding assets for a loss – as he was put in the position of being a desperate seller - that is, desperate for cash. This can be ok, if some areas of your life, or investments, are making a positive cashflow to balance this. Therefore while he had several good assets on paper, these assets were actually costing him money each month, meaning he had a negative cashflow. What did he mean? He had bought several investments off plan, and several low yielding deals which he hoped would have good capital growth. I spoke to an investor 6 months ago who told me he was asset rich but cash poor. This to will help to reduce earnings, resulting in cash flow in the way of an annual tax return. Keep in mind, when doing any kind of repairs to the home, including landscaping, make sure you save the receipts to be used as a write off. Using the same principal of charging more than the amount of your total expenses on the property, you will once again be increasing your cash flow.

This is by far one of the most effective and common ways of increasing cash flow.Īnother way to increase cash flow depending on the amount of equity you have established in a property would be to use some of that investment property’s equity to purchase another income producing property. If you are looking to increase your monthly cash flow, one of the easiest ways to do it would be to raise the rent. Once you have paid your mortgage of $1200.00, you are left with a balance of $500.00, this would be your monthly cash flow from the income producing property. This is a total of $1700.00 paid to you on a monthly basis. Now lets suppose you have a tenant on each floor with a one year lease, and you charge each tenant $850.00 a month to live there. Lets suppose you own a duplex and your monthly mortgage payment including taxes and insurance is approximately $1200.00. If you have an income producing property, the amount of money you are left with at the end of your property expenses is considered cash flow.

Buy cashflow 101