5 Things Every Landlord Should Do With Surplus Cash Flow
Owning a rental property should be viewed as a long term investment. If you take care of the property it will produce income for years to come. As apparent as this may be not every landlord is willing to go the extra mile. They would rather allocate any extra cash flow to other areas of their business or simply pocket the money. Eventually when issues with the property pop up they will wonder why they came about. Having residual monthly cash flow is great but only if you take advantage of it. By putting it back into the property you can keep the cycle running for years to come. Here are five things every landlord should do if they have surplus monthly cash flow.
- Safety. All it takes is one major incident at the property to erase years of hard work. There are certain things you can’t control but many that you can prevent with just a little diligence. Not only are taking care of safety issues smart for protecting your bottom line but it is the right thing to do. Property safety items are not going to break the budget but if they are not done they could open the door to lawsuit or other damaging problems. Start by walking the exterior of the property and looking for trouble spots. There should be hand railings at every entrance way into the property. Moving to the interior and you should make sure that your smoke and carbon monoxide detectors are in working order. Instead of changing them every few years you should purchase the ones with a 10 year life. They will cost you a couple extra bucks but it is worth it in the long run. Property safety should be a chief concern with your rental property.
- Preventative Maintenance. If you have extra cash flow you need to spend it on areas that will strengthen the property. Some of these items won’t produce an immediate return but will save you money in the long run. With every change of season you should look at which items in the property need to be cleaned, updated or simply just maintained. Not cleaning out the leaves in the gutter may not seem like a big deal but it can cause flooding may even cause the gutters to collapse. If you have a fireplace in the property it should be cleaned every year regardless of previous usage. The same is the case with your furnace, water heater, HVAC and oil tank. You will never know the true benefit of service but by spending money every season you will increase your chances of squeezing every day out of these items. Anything that gets used at the property, even seasonally, needs to be serviced every year. The year you stop doing it you open the door for trouble.
- Pay Down Balance. Many homeowners do not understand how their mortgage works. They blindly send in their monthly payment without looking at the statement and have never looked at their amortization schedule. You don’t need to be a mortgage broker to know that the bulk of your monthly payment is applied to the interest. If there is extra cash flow you should consider paying down your principal balance. As a rule of thumb just one extra monthly payment every year can knock seven years off of a 30 year mortgage. Even if you just pay a hundred dollars extra a month you will knock a few years of the loan. In addition to owning the property free and clear sooner you also reduce your principal balance. A lower balance gives you the flexibility to explore refinance or home equity options. Instead of putting your cash flow in low yield savings accounts you should consider paying down your loan balance.
- Quality. Extra cash flow gives you the ability to do things right with the property. If the kitchen sink is leaking instead of just putting a bandaid on the problem you can take care of it the right way. If there is an issue with the washing machine you can simply buy a new one rather than getting it fixed every two years. By spending money on quality you can move on from these items without having to worry about them constantly. Not only does quality improve the life of these objects but it also is more attractive to tenants. Tenants typically look for a mix of high quality and performance with their appliances and can be a factor in choosing which property to rent.
- Good Tenants. If things are going well in your rental property you should take a minute and figure out why. Everything in the property comes back to your ability to keep and find good tenants. If your tenants stop paying nothing else really matters. You should use extra cash flow to help screen every tenant applicant. Take a look at a credit report or run a background check. Spending $20 or so on a tenant may seem like a lot but the alternative is much more costly. If you like you can pass along some of these costs in the way of application fees. Whatever you do you should never take good tenants for granted. They are the backbone of your rental property and the key in keeping your cash flow cycle moving.
With surplus cash flow you should find a mix of building your reserves and taking care of short term items. By having a plan for your money you can best use it to maintain your property for years to come.