Are you interested in making money via real estate investments? Do you already have the property that you want to rent out, but have concerns about how to do so? If so, you need to understand cash flow management techniques and how to protect yourself and your investment.
The basics of cash flow management are incredibly simple. However, the details of it can become complicated quickly. If you don’t account for the unexpected, you might find yourself in a difficult financial situation.
The total cash coming in from the property might include things beyond the rent. You have various fees to charge tenants, including those for applications and being late on the lease. If you have an apartment building with on-site laundry, you will have to account for that as well. For those renting out a commercial space, any vending machines or similar products might be an additional source of cash as well.
It is essential while you are making these calculations that you err on the conservative side. Remember that your units might not all be rented out at any given time and that some people will ditch you and their rent.
Now, when it comes to expenses, the mortgage is just the beginning of the list of things that you are going to pay throughout the year. You need insurance for the mortgage, and might also have responsibility for some or all of the utilities. Keep in mind that if you are footing the bill for these things that your tenants might end up using more of the resource. While that is normal, don’t let it catch you by surprise when the bills start rolling in.
As for insurance, the mortgage is at the top of the list, but it is probably not alone. You will need to protect the land in numerous ways, including from floods, earthquakes and other natural disasters that might strike your area. Regular insurance policies for residential and commercial properties do not cover these types of accidents.
Also, you will have to keep the property itself up to par. General maintenance work will come along regular, along with repairs. If the lawn needs tending, that responsibility falls on your shoulders as well. Even if you don’t hire contractors to handle these services, you will need to catalog your expenditures related to it, including the lawnmower and upkeep for it.
As you can see, the things that fall within the expenditures list can become quite extensive very fast. This record hasn’t even touched on the taxes that you have to pay for your rental property! Likewise, payments that occur on a quarterly, bi-annual or annual basis also need to be accounted for in your calculations.
One of the things that you can do to help protect yourself is to perform a thorough background check on the applicants. While you can’t, and shouldn’t, discriminate against anyone, you do need to make sure that they have a positive rental history and personal references that you can verify. Additionally, make sure that the income is legitimate.
One way that you can reduce some of the headaches and hassles involved with managing the place is to hire a property management agency to handle much of it for you. While you need to be an informed participant in the process, you won’t have to worry about the day-to-day hassles associated with taking care of everything.
Whether you are the owner of residential or commercial land that you would like to use for income property, it is essential that you understand how the financial structure works. Speak to an attorney regarding your rights, responsibilities and the best way to handle the situation. These experts can advise you on matters like creating an LLC to separate your assets from the property.
Then, you can determine the best way to proceed. Proper preparation will help you sleep better at night, knowing that you have made sound financial choices.