7 Makeover Mistakes landlords make trying to achieve positive cashflow
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Positive Cashflow Property in Ten Steps
A positive cashflow property enables property investors to grow their portfolio faster. This is because a property with positive cashflow allows financiers to satisfy themselves that you have adequate income to service any future debt you may take on.
Positive Cashflow Property - Ten Tips:
1. Use finance wisely to leverage your makeover
Ensure your property has positive cashflow by using the banks money to finance any property enhancements you undertake. That means you just have to ensure the rent increase is greater than the interest payments on the loan in order to increase your property cashflow.
2. Understand the true rental value of your property (feasibility study)
Visit comparable properties that are up for lease in the same district as yours. Form your own opinion about your propertys rental value. If other properties are renting for more, ask yourself, Why? Do they have features your property is lacking? If I updated my place would I have a positive cashflow property?
3. Create positive cashflow by ensuring your property appeals to a specific market
For example, if your property is near a primary school, you might target young families. Secure yards, internal play spaces, swings sets and bedrooms are all important.
If youre targeting singles or young couples offer low maintenance yards, entertainment areas, free cable TV and Internet connections.
4. Get a Depreciation Schedule (for tax purposes)
This is low hanging fruit. Creating a depreciation schedule for your property will save you thousands of dollars in tax deductions at the end of each financial year. You'll see your property's cashflow become more positive with just a phone call to a quantity surveyor.
5. Check your financing
Have you got the best mortgage deal from your financier? It pays to shop your mortgage around every now and then just to check that youre not paying more than you need to. Put simply, decreasing any overheads is more likley to deliver a positive cashflow property.
6. Engage the tenants to learn what they want, then let them know what it would cost them in rent to have it done
By having them choose what type of work theyd like done, you can in turn have them pay for it by increasing their rent. Engaging your tenants creates a win-win arrangement. They love the house they live in and you get a more positive cashflow for your property.
7. Paint inside
Modern, light and warm colours (such as Dulux Antique White USA) make rooms more spacious and appealing to prospective tenants. It also implies that you look after the property and will keep it in good condition throughout their tenancy.
Recently, a Makeover Group client invested $4,500 to paint her two bedroom apartment. She was then able to increase the rent by $160 a month for the following tenancy. Given the monthly interest repayment at 7.5% on $4,500 is $28, she her property cashflow more positive by $132 a month, or almost $1,600 a year.
8. Update your kitchen
The kitchen is one of the most influential rooms in a property. The before and after photos below show what a difference a makeover can make. The rental value increased by $260 a month while the cost of financing the $4,500 (at 7% interest) was $26 per month. That is, we made the property's cashflow more positive by ($260 - $26 = $234/month).
9. Solar Panels
For just over $3,000 plus installation fees, you can have a 5kw solar panel system installed on your property that should generate enough power to satisfy the tenants power demand. At 6.5% interest, thats a cost of $16.25 per month. However by advertising the property with no monthly power bills youre able to increase the rent by as much as $30/month.
10. Add on a room
The more rooms your property has, the higher its rental. This is especially true when it comes to additional bedrooms. Depending upon location, an extra bedroom adds $70 to $200 to your weekly rental. So, if the layout of your property lends itself to having another bedroom added, do the numbers to see how youd fare.
For example, we advised one RentBuilder client to add a bedroom at a cost of $24,000, which (@6.5%) converts to $130 per month in interest costs. They were then able to increase their rent by $530 per month, putting almost $5,000 positive cashflow in their pocket each year
We have a whole collection of strategies that our clients use for cashflow positive property. If you'd like to find out more call us on 1300 768 464 or contact us.