Maintaining a Positive Cash Flow Property in Your Portfolio

Your cash flow statement should ideally reflect an influx of cash that is fairly reliable. While rental properties are notorious for subjecting the building owner to fluctuating dollar values when it comes to the rents being paid on time - or at all - the overall quality of the tenants will in large part determine your ability to keep that figure in your cash flow statement persistently even.

If you have been wise in your choice of property management, the odds are good that your manager is always on the lookout for the tenants who will pay their bills on time and thus present good credit risks and may be rented to without fear of losing out on the deal.

Positive cash flow property is more than rent payments

Yet there is more to a positive cash flow property than just having the rents come in on time; in addition to the foregoing, the outgoing funds should remain below the level of income by a considerable margin.

While everyone understands that the occasional water main break will happen or the exterminator may visit the garden level apartment to dispose of the cockroaches that may have made themselves at home, by and large the maintenance issues should be minor and easily offset by the monthly intake.  This is an example of a positive cash flow property that will be a true asset to your investment portfolio.

On the other hand of the equation is the property where rents are not being paid. This may be due to tenants you inherited and who are not holding up their ends of the lease agreements, or perhaps it stems from vacant apartments.

Add to this the ever present danger of minor maintenance problems, and you can ascertain quite quickly that this situation will soon drain your otherwise healthy cash flow. While in a multi family dwelling there is precious little to counteract this problem, in a single family dwelling the saving grace for a negative cash flow property may be the neutralizing effect a booming market has on the overall value of the property.

You may find that the worth of the property is appreciating by leaps and bounds and what you are lacking in positive cash flow, property rates on the rise more than make up for.

Of course, this is a small consolation for the real estate investor who is looking to find other investors to help out with putting a property deal together. Potential investors want to see your acumen with the funds you do have and they also by and large want to be certain that you can spot a good deal and differentiate it from a bad one in a heartbeat.

The last thing you, therefore, want to see in your cash flow statement is the rental property that continues to lose money every single month in spite of your and your property manager's best efforts. In such a case there is little you can do to rescue the property other than dramatically lower the rents to underbid competing landlords, offer special move in deals, greatly refurbish the property to make it more valuable in other ways, or simply let go of it and attempt to sell it as soon as possible before the problem becomes so large that no other real estate investor will dare to take it off your hands for fear of facing similar problems.