If you're new to investing in Salt Lake City houses, then you've probably heard all about the benefits of owning property and receiving income from rent. Our Salt Lake City property management team works with investors to understand rental property investing, set ROI goals, and manage investment to success!
One critical factor in determining if a property is a good investment—before closing on the property—is understanding the cash flow potential. Here’s how to calculate potential cash flow for a property and add high-performing investments to your real estate portfolio!
What is Cash Flow?
Cash flow, otherwise known as net profit, is the amount of money a property generates after all expenses have been paid. A simple way to look at it is to consider the amount collected every month in rent, then subtract the monthly expenses, including a mortgage payment, utilities, insurance, taxes, and other operating costs. The net difference is the operating cash flow on the property.
What Goes Into a Cash Flow Calculation?
Determining your actual cash flow for a property requires more than just considering the rent and mortgage payment. While these two factors are usually the biggest ones, experienced property owners will also need to consider a few other things. On the expenses side, property managers recommend considering the following costs, even if these numbers are estimated while analyzing a potential investment.
The taxes you pay on a property are usually due once a year. Still, a property manager recommends factoring these costs on a monthly basis to analyze cash flow and return on investment. If a rental unit’s taxes are not included in your mortgage payment, make sure you factor these costs into your analysis.
Maintenance and Repair Costs
This can be a complex number to predict and varies per property, but a Salt Lake City property management company can help! As a general rule, property owners can assume 1% of the property's value per year in maintenance costs. Property managers also recommend adding reasonable expenses for upgrades or repairs when evaluating a potential property.
In between renters, there will be some downtime when you won't collect rent while you clean, repair, and show the property. While one of the best property management companies in Salt Lake City can help you reduce vacancy times (and the costs of vacancies), your cash flow calculation should include an estimated “cost” for income loss between renters.
Income (Including Various Fees)
When calculating cash flow, investors must include income! Rental properties primarily generate income through rental payments, but investors should also consider fees collected from renters. These fees can include:
- Application fees. While these fees are typically not particularly high, they can be an added source of income, mainly when a rental market is hot, and units are in high demand.
- Parking fees. If the monthly rental payment doesn’t include a fee for parking, be sure to include parking fees if you collect one from renters.
- Pet fees. Charging for pets is an industry-standard, so be sure to add income from pet fees into your total rental income for a property.
You might be wondering “how much can I rent my house for” when estimating a rental unit’s monthly rent amount. If you’re not sure what works best for the Salt Lake City, Utah area, work with a property manager to help you with this number.
How Can a Rental Property Owner Increase Cash Flow?
So, when you run the numbers and the cash flow is lower than you need for a property, what can you do to increase it? Consider these recommendations from expert property managers!
- Increase the rent. While this option isn't always popular with tenants, too many landlords make the mistake of keeping rent the same year after year, even with increasing operating costs. A reasonable rent increase can help preserve tenant relationships while improving cash flow and ROIs. Remember, this can only be done at the start of a new lease agreement. Work with a property manager to compare your unit to other units for rent in the area and price it competitively.
- Reduce costs. While it might seem like you’re saving money to conduct some tasks on your own (including DIY maintenance), that’s not always the case. A property management company can help you analyze costs and apply better processes and strategies to optimize operations and returns.
- Consider property upgrades. Sometimes it takes some additional investment to boost long-term cash flow and ROI. Property managers can help you identify upgrades that can attract more tenants, improve renewal rates, and help justify higher rental rates!
Maximizing positive cash flow and returns aren’t always easy. However, working with the best residential property managers helps many investors find better properties, avoid money-losing investments, and experience more long-term success!
Improve Cash Flow With a Salt Lake City Property Management Company
It's normal to be unsure about estimating positive cash flows for your potential rental property. If you're not sure where to turn, a reputable Salt Lake City property management company can help! Reeder Asset Management helps rental property owners find excellent properties and manage them for maximum returns. Reach out soon to learn more about our property management services and how we can help boost your cash flow!
Find your property’s current return on investment with our free tool to Calculate Your Rental Property ROI!