Real Estate Cash Flow: What properties generate the highest cash flow?

As a property investor, there are two measures you should consider when analysing the potential performance of buy to let property:

  1. Cash Flow – both before and after tax
  2. Capital Appreciation – both before and after tax

The only way to improve the cash flow is by increasing income and decreasing costs. The more you are able to do this, the higher the net cash flow. There are certain properties where this will be easier to do than others. So, when you’re thinking about what property to buy, you need to consider the type of property you buy carefully.

3 Ways to Improve Your Real Estate Cash Flow

There are three factors that impact your net cash flow. These factors are:

  1. Void Periods: You need to ensure your void periods (the amount of time between tenancies with nobody paying rent) are kept to a minimum
  2. Rental Income: You need to ensure you are generating as much rental income as possible
  3. Cost Management: You need to ensure you are keeping your costs as low as possible. There are only certain costs you can control – so focus on these.

Properties that generate the best cash flow

Here’s our guide to help you identify which properties will let the fastest, which will command the highest rent and which will have the lowest costs. It is easier to do than you might think ….

1. What properties let the fastest

The more time your property is occupied by a tenant, the lower the void period with no income.  So how do you improve occupancy rates to make sure your void periods are as low as possible.

In February 2019, the well known and respected London Residential Research business Molior London undertook some analysis on the London rental real estate market. They found that the average let-up rate across 38 schemes in London was 14.3 units per month.  This dropped to 14.2 units per month for schemes without a concierge and rose to 14.5 units per month for schemes with a concierge.    

In short, properties with a concierge in the building are rented more quickly. So if you’re considering buying an investment property, evidence shows it will rent more quickly if the building has a concierge.

real estate cash flow:  spend time considering which properties will generate the highest cash flow

2. What properties command the highest rents

It goes without saying that the more income you can derive from your investment, the better your return. The same Molior report also found that rents were significantly higher in schemes with a concierge.  In schemes with a concierge, one-bedroom apartments achieved rents that were 24% higher and two-bedroom apartments achieved rents 23% higher than schemes without a concierge.

In short, a concierge will enable you to command a higher rent.

3. Cost Management

There are many potential costs that will impact your cash flow, like taxes and insurance but there are probably only 20% which you can influence, so just focus on these:

Council Rates (Council Tax) 

In some countries such as the UK, council tax is paid by the tenant, so this cost is only relevant if your property is located in a country where the landlord is responsible for the tax (such as Australia).  You should consider the level of council tax for your particular property relative to others in the neighbourhood and neighbouring areas.

If the council tax for your particular property is significantly higher than other locations, it will impact the amount of rent you can achieve, so make sure that these costs are in line with the market as they are very important.

Insurance

As a landlord, you generally need four types of insurance, building insurance, public liability, contents and rental protection. You need to consider what level of insurance you genuinely require. To get the right level of insurance the best thing to do is determine what your insurance requirement is and to have multiple insurers quote to provide that level of insurance.  Remember insurance is something you are unlikely to ever use, so you want to cover for the worst possible scenarios, which is when you are going to use it.

Property Agency Fees

We have discussed in other articles that we strongly believe you should appoint a letting and managing agent.    The key is to get value for money and to shop around – the cheapest will not always be the best, but likewise, the most expensive may not be the best either.  Make sure that get what you need from your property manager and ensure you aren’t paying extra for services that should be part of the service.  

Body Corporate or Service Charges

These can be very high and you should always consider these charges when you purchase strata title or leasehold properties.  Remember when you’re buying off-plan, these are simply estimates. 

The important things to consider are that some facilities can be very expensive to manage and maintain. Swimming pools, excessive lifts and cinema rooms are all unlikely to generate more rent but can cost you a significant amount of money. Remember, these are costs borne by the landlord, not the tenant. 

A concierge can help you to generate the highest cash flow

Repairs and Maintenance

The cost of minor repairs can build up to become a considerable expense, particularly if you have a tenant who is not able or willing to repair minor niggles and want the property manager to deal with them.  The issue with these repair items is that the call-out fees will soon add up and will likely cost more than parts.

Work with your property manager to get a preventative maintenance program in place. For long-term tenants have a handyman go to the site annually to deal with maintenance issues or in between tenants. This won’t deal with everything, however, it will help you with both long-term tenant retention, tenants will not leave for an alternative rental if they have a high level of service.  

How to generate the highest cash flow?

These are the three areas within your control as a real estate investor where you can improve your cash flow: –

  • Purchase property where void periods can be minimised
  • Drive rents through purchasing in the buildings with the right level of amenities ( be mindful of buildings with a high level of amenities and associated service charges)
  • Make sure you focus on reducing the costs that are within your control. 

We hope you have found this article useful, feel free to comment or ask any questions.  For more information on overseas investment property check out our other articles and request your copy of our Buyers Guides from [email protected]

Important notice:  Proptech Pioneer and its associated companies seek to provide real estate investors with guides, information and tools, but we cannot guarantee this information to be accurate or perfect.  You use the information at your own risk and accept no liability if you rely on this information.   Proptech Pioneer is not a tax advisor, accountant conveyancer, lawyer, financial advisor or mortgage advisor.  You should seek independent advice from independent professionals before making any investment decision.