7 Mistakes That Kill Your Cash Flow

Managed correctly, rental properties make great investments that appreciate over time while providing an additional monthly income stream. That being said, making plans for passive income on paper is one thing; being successful at it is another.

Outside of the day-to-day responsibilities of a real estate investor (ie. dealing with an unanticipated maintenance crisis in the middle of the night, chasing down rent payments, etc.), a property investor must have smart systems in place to successfully accomplish the purpose of a real estate portfolio. It’s the solid and necessary processes that will protect you from the following seven mistakes that kill your cash flow.

1. Not Screening Tenants Thoroughly Enough – Numerous financial, legal, property and safety problems can arise for landlords when a rental applicant isn’t meticulously reviewed. Failing to do so could result in a tenant who is unreliable, financially irresponsible (late rent payments and/or no payments at all), destructive to your property, and/or even poses a threat to other residents. Not to mention the fact that eviction is never an inexpensive, quick or easy process.
2. Under/Overpricing Rent Based on Emotion vs. Market Data – Knowing the proper equation (yes, there’s an equation) and information needed to determine a rental rate is crucial to cash flow. A property can’t be priced so high that rent can’t be increased when necessary (ie. changes in the economy). It also can’t carry a price point that extends its vacancy duration. Meanwhile, underpricing a rental defeats the whole purpose of an investment and can leave you without funds to cover necessary unforeseen maintenance and repairs.
3. Skipping Routine Property Inspections – As in the game of life, it’s best to be proactive rather than reactive. Regular inspections allow landlords to identify and address maintenance needs before they become emergencies, saving money and avoiding potential breakdowns of vital systems like HVAC or plumbing. While skipping routine property inspections can lead to significant financial costs, legal liabilities, compromised tenant safety, and reduced property value in the long run.
4. Poor Lease Terms or Weak Lease Enforcement – Weak lease enforcement leads to just as many issues as not screening tenants thoroughly enough. Poorly drafted leases or inadequate enforcement can lead to costly legal battles with tenants, difficulty in collecting rent, a struggle to enforce rules like noise regulations, pet policies, or restrictions on illegal activities. Investing in a robust lease agreement and consistently enforcing its terms is key for mitigating risks and protecting your real estate investment and cash flow.
5. Not Handling Maintenance in a Timely Manner – Similar to skipping routine property inspections, not handling maintenance issues in a timely manner can lead to significantly higher long-term costs, tenant dissatisfaction (which may result in tenants choosing to not renew their lease), damage to an investor’s reputation (making it challenging to attract and retain good tenants), operational inefficiencies, and so much more.
6. Not Strictly Enforcing Late Fees and/or Rent Due Dates – Without the incentive of a late fee and/or rent due date, an investor is likely to end up in a situation where tenants are paying rent late, potentially turning late payments into a habit. Frequent late payments and attempts to collect overdue rent places a strain on the landlord-tenant relationship. This all eventually creates a cycle of financial problems for the investor, impacting their bottom line and potentially jeopardizing their investment in the long run.
7. Failing to Plan for Vacancy and Turnover Costs – Failing to plan for vacancy and turnover costs can lead to an abundance of issues including: lost rental income, increased operating costs, increased risk of damage to the property, decline in property value, and a decrease in investor confidence.

In summary, there are many different facets of real estate investing. All facets work together to ensure the success of a property, yet each part requires its very own personalized systems and processes. While the vacation days of a landlord are few and far between, the rewards can be generational.

If you’re an investor who would like to maximize the enjoyment of your investments while minimizing the hassle, give consideration to hiring a professional property management company like Aligned Property Management. Not only can they deliver seamless property management solutions, but the right company will focus on building value, profits and driving long-term success.

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