Cash flow monitors how money goes in and out of your business when it comes to income and expenditure.
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Of course, all business owners hope to have positive cash flow—where more money is earned than spent. With negative cash flow, you’ll first have to work out how to pay off outstanding debts. And then, you can plan for a positive cash flow comeback!
One of the main things you need to learn as a landlord or real estate investor is how to calculate your rental property cash flow. Using rental cash flow calculator can help you manage your business at ease. Having control over your cash flow can save you from a headache!
The following guidelines can help you manage your vacation property rental’s cash flow.
Monitor your Cash Flow Regularly
You don’t want to put your business at risk. That is why you have to monitor your cash flow regularly. How? By using this rental cash flow calculator. A cash flow calculator can help you determine the gross income of the property, as well as deduct all expenses and debt service relating to the property.
A rental property cash flow analysis gives you an idea of where you stand. It reveals your profit and expenses. As a result, you can find the root source of any problems encountered and deal with it before it proliferates. Then, you come up with plans on how to retain positive cash flow.
Have Your Property Inspected Annually
A property inspection should not only be done before purchase. It is recommended that inspections be conducted annually. With a yearly inspection, you can learn what the usual repairs or maintenance are to retain your property’s structural integrity. Once you know these, you can then work to prepare your annual budget.
Cash flow projections using a rental income tax calculator provide you with an estimate as to when you will require more funding to continue operations or how to take precautionary steps before it happens. Therefore, if you schedule a thorough property inspection every year, it will not be a surprise when to cut the budget for repairs or maintenance needs.
This also gives you enough time to contact contractors beforehand, so that you know where to go during emergencies. If you’ve already found a contractor to work with, you know how much he or she charges for the work that needs to be done at your property.
Another importance of annual property inspection to your rental cash flow is that it reminds you of any warranties that are about to expire. Using warranties for free inspections or maintenance contributes to a positive cash flow for your business. You can also take this time to negotiate with the coverage providers for low-cost warranty extensions. If successful, you’ll be able to relocate more cash on other important matters concerning your business.
Alternate Your Lease’s Expiration Date
Keeping all leases on similar payment schedules can likewise impact your cash flow. This would be a problem if your units turn over or your tenants decide to not renew their contracts at the same time. Staggering lease expirations can help prevent having to deal with a low vacancy rate.
One effective way of staggering your tenants’ leases is to schedule the end of a contract during the high season of rental activity, usually during spring through summer. Additionally, remind your guests in advance in regards to when their lease contract will end. This way, you’ll know if they have plans to extend or if you need to start advertising the vacancy for new tenants.
By law, you are not allowed to raise the rent before the lease contract ends. Therefore, another option is to go for a month-to-month rental agreement instead. This can help you make rate adjustments according to your cash flow calculations. The downside is that the tenant may not agree with the terms and leave. So, you also have to be careful with this course of action.
Why Is It Important to Track Your Rental Cash Flow?
Cash flow is important in any kind of business. It’s like monitoring your pulse. Without it, you’d be dead. Using a rental value calculator to track your cash flow is important because:
It creates more opportunity
Having a positive cash flow unlocks an opportunity for you to open other investments. This can lead you to achieve great financial well-being.
It provides safety
With positive cash flow, you can set aside more money and have something to use in case of an emergency.
It gives you freedom
A positive cash flow that covers your monthly expenses will be more than enough for you to enjoy life a bit more without worrying too much about your business. You can spend more time with the people you love or engage in projects you’ve never done before. Endless possibilities await!
We all want to bring in as much profit as we can through our short-term rental business. To do that, you need to give your cash flow statement keen attention and plan ahead with actionable goals. Using this rental cash flow calculator regularly can help you adjust if there’s a need for emergency repairs or modifications to a tenant’s lease contract. Indeed, monitoring your cash flow can help maintain the success of your business.
Managing a business is not an easy task. Fortunately, you can easily access valuable guidelines from DesignLike. We provide our readers with different articles about architecture, design, and more. Learn more about how to effectively manage your rental property business today!