How to Stay Cash Flow Positive in Property Management
Property management can seem like a juggling act. Tenants to serve. Grounds to maintain. Building systems to manage. Repairs to make. Improvements to plan. Throw in staffing — and expenses alone can cause the whole system to come toppling down.
The best way to prevent this is to keep operating expenses lower than operating income and maintain a monthly positive cash flow. With all of the proverbial balls in the air, it may seem impossible. Follow these practices to help manage your risk and exposure, and get on track toward profitable property management.
1. Stagger lease terms. Diversify your risk of vacancy by ensuring your lease agreements don’t all expire in the same month. Not only would that hurt cash flow, but if multiple tenants leave at once, it could unintentionally send a negative message to prospective lessees.
2. Maintain multiple tenants. It’s the classic 80-20 rule — 80% of a company’s profits come from 20% of its customers. Even if one tenant is expanding, balance the size and number of tenants throughout the property. This way, you are never solely dependent on one income stream.
3. Keep industries diverse and complementary. You may not have this luxury due to zoning or location, but if you do, take full advantage. A healthy mix of tenant businesses can serve your neighborhood well if you have a commercial property. And it can prevent you from being pigeon-holed if you have a corporate property. Make sure the businesses are complementary in terms of noise level, for instance, to ensure tenant satisfaction.
4. Reduce expenses where possible. Easier said than done, right? Hiring the right staff, enlisting a property management services company, and leveraging electronic records management software can create night and day changes for your time management and efficiency. Outsourcing management is a commitment, but the long-term revenue, savings, and peace of mind are priceless.
5. Reconcile common area maintenance charges twice a year. Most property owners reconcile allocated CAM dollars with actual costs at the end of the year. This also happens to be the time when cash flow could be a concern, and no one wants to chase after money. Conducting a mid-year check-in has multiple benefits: it stabilizes projectable expenses, reduces a major swing in cash flow at the end of the year, and strengthens the trust between owner and tenant.
Making money in property management starts with a smart strategy and requires diligence, efficiency, and flexibility in execution. Once your process is perfected, tenant retention, maximized asset value, and positive cash flow will become second nature.