3 reasons you are not making money on your property business
If your properties are delivering a positive cash flow each month – fantastic, that’s just as it should be. But if you are just about breaking even, or worse still, losing money then you need to consider why, i.e. what are you doing wrong and what can you do to change it.
According to Vicki Wusche, property investor and author of ‘Make more money from property’ property investors, whether you own one or 100 properties, should always consider the cash-flow of their property – but many don’t, or they ignore it and justify this by referring to the long-term capital gain.
But without cash flow you may find you don’t have enough to pay the mortgage for the next five years – in which case you’ll never get to benefit from the capital gain.
So why haven’t you been making lots of money over the last three years? Interest rates have been at their lowest and although Local Housing Rates have been reduced, the general market rents have held stable, so you should be making money. If you aren’t, these could be the reasons why:
- 1. You bought the wrong property for the wrong price
It’s vital to be clear about your strategy when investing. The investment should generate cash flow – even if you also intend to benefit from the capital gain. What tenants would want to live in this property and what are they likely to pay in rent and cost in lost income and voids.
What can you do?
A) Speak to your letting agent about refurbishing the property and letting to ‘better’ tenants at a higher rate
B) Research the potential to rent the property as a multi-let or HMO (house of multiple occupancy)
C) Speak to the council about joining their schemes to house benefit tenants and get a guaranteed rent.
- 2. You are not managing your income
Whether you self-manage or use a letting agent it is vital to have a system that triggers an alert when your rent is due. If rent is not paid on time you need to take, immediately, appropriate action to get the rent back up to date.
What can you do?
A) Remember that your letting agent is paid to monitor your property, so think about how you can make yourself their preferred client. Answer calls and emails straight away. Don’t pester them but be professional. Help them to like you and want to work with you
B) Make a note in diary or phone when your rent is due – ON THAT DAY check your bank and if payment is not received query it
C) Be prepared to work with a tenant to get them to repay any debts rather than opt for immediate eviction which costs money and loses you income.
- 3. Your are not maintaining your property
I believe we are providing homes for people. I would not tolerate living in damp or untidy conditions so why should my tenants. If you do not respond to maintenance calls quickly your tenants will leave. For a repair that might cost £250 you could lose £400-£650 in rent.
What can you do?
A) Start by making the property fit to rent on day one. This reduces maintenance and repairs throughout the year while tenants are in place.
B) Agree with the letting agent that any maintenance requests concerning safety, heating, water or light up to a value of £300 are carried out immediately and reported to you. Your tenant’s health and safety must come first and your have a duty of care
C) Establish a system where the letting agent sends you a copy of their inspection reports on a quarterly or half yearly basis. Act on faults and maintenance reported
If this seems onerous or your life is too busy then maybe this year would be a good year to sell your property. Benefit from the capital gain (while it lasts) and maybe start again with a more focused strategy or a better system.
- Buy at the right price for the right reason
- Your letting agent is a critical team member that is relatively poorly paid – be helpful
- Refurbish to a professional standard and respond quickly to repairs and maintenance
Investing in property is a business. You need to be consistent, persistent and determined to succeed. Put systems in place to help you. Get a good team to work with you. It can be as simple as that to increase your income by 20% per annum. An investment is there, by definition, to make money, so make sure yours is.
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