Top 7 Ways To Handle Negative Cash Flow Property

It’s quite surprising yet true; every real estate investor looks for owning a rental property that merges massive cash. But in reality, the property does not always appreciate, and repairs and ongoing maintenance do exist. Tenants do move out, creating rental vacancies, and all this leads to negative cash flow property.

However, if you are wondering how to deal with your negative cash flow, as and when does it occur?

Below there are a few of the potential solutions that will help you tackle the negative cash flow.

When does Negative Cash Flow occur?

Spending too much on Upkeep

One of the main reasons for earning a negative cash flow can be spending too much of your money on things like utilities, furnishing, or renovation. But, you need to understand that the money your property generates in time should be categorized into two categories like maintenance, and the other for yourself.

Yet, many investors make the mistake of spending too much on a property outlook to attract more tenants. However, you need to know that the tenants do not look for luxurious places. Instead, they look for a decent place in which they can settle in for an extended period with furnishing everything on by itself and call it home.

Spending too little on Upkeep

As said above, sometimes, the opposite takes place, and you end up spending too little or none on your property. Either you forget to invest in your property or skip renovating or restructuring at times. Further, your unwillingness to pay for the necessary keep ups automatically leads to low rents.

As a result, these will reduce the number of rents to be charged from the tenants, and will significantly influence the vacancy rates.

Thus, consider implementing minor remodelling projects; for this, you can consider upgrading your backyard or else renovating the bathroom. Such little improvements will bring a high return on investment.

Setting in-Moderate Rental Price

Every beginner desires to earn more money by investing in real estate properties. As a result, they end up charging high rents from the tenants while adopting a quick rich policy. But, at last charging too high, makes the property undesirable or unaffordable and leads to high vacancy rates.

Further, for overcoming such situations, they decide to charge too little and land up incurring the expenses out of their pocket. This is a common reason for most of the negative cash flow.

So, before setting up the price for rents, try to study the market, and perform some analysis. Also, you can consult real estate agents for setting up a reliable and affordable price.

Best Negative Cash Flow Solutions

Conversion of the Unused Space

If you have a large house with the potential of converting it into either a two-or-three unit, you can start for the conversion of the part of the house that remains unused or underused with time. Though such modification takes time and requires massive money at the initial, yet you can opt for other means where you can get a mortgage with either having bad credit or no cash like hard money loans.

Such type of conversion can either include a basement attic, an out-building, a room over a garage, or even the garage itself. Moreover, adding a kitchen, bathroom, and perhaps a bedroom to any of the above options can result in tremendous, and increase the potential of earning a significant amount of revenue over time.

Changing the Financial Strategy

Often you find any landlord usually has several expenses, including the debt service or a mortgage payment. In such a case, you can choose for refinancing the mortgage by reducing the loan term or perhaps, opting for a loan at a decreased interest rate. As a result, the serviceability of the reduced loan will enable you to make the payments quickly and will increase the cash flow over time.

Finding a Joint Venture Partner

Many times, you will find many professionals who can make excellent incomes or experts who are interested in making large investments in real estate but don’t have the time or knowledge for the management of the day-to-day activities. As such, you can take this individual as your partner and form a joint venture, and use it for a capital injection by eliminating the respective individual by being an active partner.

In other words, such partners can be said as a sleeping partner, and you can thereby reduce your negative cash flow in exchange for a percentage of capital gains from the appreciation of the property.

For example, suppose the reason for the negative cash flow is due to the difficulty in keeping tenants for the lack of maintenance. In that case, you can use this capital for making the necessary improvements, or by adjusting in creating a more desirable property. In this way, you can attract and retain qualified tents and reduce the risks caused by undue vacancies.

Change your Rental Strategy

Often the cause of a negative cash flow might be due to the usage of the wrong rental strategy. For instance, if an airport locates your property, and you use a long-term rental strategy, then you might land up earning a negative cash flow. As it is a vacation spot, and following a long-term might make it challenging to fill up the vacancy, whenever the need arises,  relative to short-term rentals. So, it’s important to consider switching your investment strategy. In some cases, you can opt for a short-term rental approach instead.

Also, before deciding which strategy will work, including looking at many factors such as location and other amenities so provided. These factors mostly determine whether you should be adopting a specific rental strategy or not.

Charge for Outsourcing Amenities

If you provide some additional or potential utilities to your tenants, charge a reasonable price for such accommodations. Moreover, you can even rent the different facilities like a storage unit to a non-tenant, for accruing additional sources of income.

In this way, you can increase a significant cash flow, and turn your rental property into a positive cash flow.

Accommodation like Holiday Resort

Suppose your property is located in a nice area or else, besides a seashore or beach, and is conducive to a physical layout. In that case, you can try your luck in covering it into something, like a holiday or beach resort. Also, you can work on accommodation for bed and breakfast for catering to the clients in spending some leisure time.

Of course, for such a setup, you need inclination and a proper license to carry such business, yet it can turn your negative cash flow into an excellent surplus.

Sell the Negative Cash Flow Investment

Though it sounds weird to sell the negative cash flow investment, yet, it can be an option too. But it would help if you went to this powerful solution, only when you feel that a negative cash flow seems a significant problem, and is hampering your survival in the competitive market.

Also, if it doesn’t seem to work even after considering all the causes and possible solutions, selling your negative cash flow investment can be the best option. However, in such a situation, keep in mind to find a reliable realtor specialized in the property you have, as they can land up in bidding a right and lump sum amount on your property.

The Final Epilogue

As said above, these are some of the few ideas that enable a landlord to hold down on their property and rescue it from the perils of negative cash flow. However, its success largely depends on the property or the situation you are in. For some, these ideas will remove the perils of negative cash flow, and for some, these ideas may not work due to their building size, structure, lot size, location, zoning, etc.

Further, for some, the idea of selling the property can be the best option for cutting up the losses and taking off the bumps.

Yet, solving the problem of negative cash flow entirely depends on the mental willingness and ability of the investors, as it is a part of success in real estate. So, my advice would be to please do work on proper diligence and check out with your experts before embarking on a new strategy.