When it comes to investing in property the number one goal for any investor is to get a return on their investment. Nothing can cut your pockets deeper than poor cashflow management to ensure that your investment is for a long term. These are 6 handy ways in which you can manage your cash flow when investing in property.
1. Not crunching the numbers
Numbers, numbers, and more numbers are something that investors have to constantly keep tabs on to see how their investment will be performing or is performing. Be careful not to fall into the common trap of miscalculating your cash flow. This means not only looking at whether you will be able to meet the occupancy costs for the year but looking at things such as the maintenance or insurance costs that come with maintaining your property. Miscalculating these funds can result in you having to extend your cash flow into sums that could create financial stress. The worst case scenario is that you will have to sell under pressure, which can also lead to a loss for you.
2. Call in the professionals
You may have crunched the numbers, but getting a professional second opinion on your calculations can prevent you from making a costly mistake. Being absolutely sure on how much cash flow you have is important. This means talking to an accountant who will be able to run the numbers. This can help you know if you are about to invest in property that you can afford or if you are going to bite off more than you can chew.
3. Have you considered the ongoing costs?
There is a wide range of costs that go beyond the property price that needs to be considered. This includes costs such as property management fees, repair fees, rates, body corporate fees, and insurance to name a few. Keep in mind that there is also the mortgage interest rate and ongoing fees and charges that need to be paid. Make sure to find a property that your cash flow can comfortably afford, even if it has vacant rooms.
4. Now when to let go
As much as you may plan for around your property and crunch the numbers, there are still some aspects that can be out of your control. For example, an economic downturn that causes dwelling values to fall drastically in the area in which you have invested in. According to CoreLogic, 60% of Australian property investors are losing money every week by holding onto properties that reduce their net cash flow. The key is knowing when to let go before things take a turn for the worse.
5. Potential tax benefits that you can tap into
Knowing ways, you can maximise your cash flow to work for you can be a valuable asset. There are various tax benefits that you can claim on a range of expenses that relate to your rental property. This can be claimed as tax deductions which can improve your cash flow. This will vary depending on the type of property that you hold. Therefore, it is important to check the Australian Taxation Office website to see what will be suitable for your investment.
6. Property management
The way you manage your property can lead you on the path of making a successful investment or a costly one. This means it will be likely that you will employ a property manager to oversee your property on your behalf. This comes with its own fees that vary from manager to manager. It is best to get a property manager that has a proven track record to ensure that your investment is taken care of.