How to Increase Cash Flow in a Rental Property

Rental properties are a popular—and effective—way to build an extra stream of income. Whether you’re pursuing it as a full-time career option, or just a complement to your existing full-time job, if you find the right property and keep it occupied, you should be able to generate more revenue than you spend in ongoing expenses.

That said, eventually you may find yourself at a crossroads; you aren’t making as much money as you think you should, or else you feel you could be increasing your profitability. If you find yourself in this position, you’ll be pleased to know there are many ways you can improve your cash flow—and not all of them depend on you increasing rent.

Increasing Rent

The first and most obvious way you can improve your cash flow is to increase rent for your tenants. With more income every month, you should be able to turn a bigger profit, especially over a period of months to years. However, you’ll need to do this with caution.

  • Understand local laws. Some areas have strict laws about when and how you increase rent. For example, you may not be able to increase rent for a tenant who has lived in your building for a certain number of years, or you may not be able to increase rent multiple times in a single year. Be sure to contact a lawyer and understand your local laws before proceeding.
  • Send a notification. In some cities, you’ll be required to send your tenants a written notification that you’re increasing rent. Even if this isn’t the case, sending a written notice—along with a justification for why you’re increasing rent—is a polite move your tenants will appreciate.
  • Keep increases reasonable. When increasing rent, make sure to keep your increases in line with tenant expectations. If you increase rent too much or too frequently, you’ll chase away your most loyal tenants. Instead, keep your increases as modest as possible, and look to comparable rates in the neighborhood to judge whether your rent is fair.

Of course, increasing rent isn’t the only way to improve cash flow at your rental property.

Adding New Sources of Income

You can also increase cash flow by adding new sources of income. Depending on the nature of your property, you may be able to charge your tenants for additional services, or provide new amenities your tenants can purchase for an optional extra fee. For example, you might install coin-operated washing machines and dryers, so your tenants can do laundry onsite for a small additional charge, or install vending machines where tenants can buy snacks. You could also start charging for parking or something similar.

Decreasing Expenses

You can change your approach entirely by improving your cash flow by decreasing your expenses. In most cases, this is more challenging and less straightforward than generating more revenue. For example, you could try to decrease your management expenses by finding less expensive, more attentive contractors, or by choosing to do more work to the property yourself (rather than hiring someone to do it).

Making the Most of Vacancies

Vacancies are the biggest problem for your cash flow, but there are some steps you can take to make the most of your vacancies. For example, you could list your property on a platform like Airbnb, temporarily filling the unit while you look for a long-term tenant. You could also use this otherwise wasted time to commit renovations to the property, making it more attractive to tenants—and therefore more valuable. When you list the property again, you can get away with charging more for rent.

Ending Vacancies Quickly

Even though there are some steps you can take to make money during periods of vacancy, vacancies are still a major problem—and you should be working to end those vacancies quickly. Your first priority is finding quality, reliable tenants, so don’t skip tenant screening; instead, try to attract as many qualified applicants as possible, and don’t let up until the unit is filled.

Adding New Properties

If you’ve tried these measures, but are still disappointed with your property’s cash flow, the best option may be to add more properties to your portfolio. Even if your cash flow is small on a per-property basis, scaling your rental property operation could easily multiply your profitability.

There’s no one right way to improve your property’s cash flow; any combination of different strategies could be enough to improve your bottom line. Understand your local laws, your tenants’ dispositions, your current strengths and weaknesses, and your ultimate goals before deciding on an approach. From there, you can learn from the experience and continue to make tweaks to your financials.