Understanding Cash Flow: How to Keep Your Rental Business Profitable

At C&C Property Management, we know cash flow is king. This is where your entire focus should be if you want to realize maximum profits from your rental investment.

As a rental property owner, your number one goal is to maximize your cash flow. In other words, you want to optimize your profits and keep more of what your rental property generates, especially when interest rates are rising.

However, the only way to do that is by carefully analyzing your money inflows and outflows. Unfortunately, this is an area where many landlords fall short, which limits their profitability.

What Is Cash Flow?

Cash flow refers to the way money flows into and out of a rental investment. You can calculate your property’s cash flow by adding up all rental income and subtracting all expenses.

Examples of rental income:

• Monthly rent.
• Late rent fees.
• Lease termination fees.
• Withheld portions of security deposits.
  
  

Examples of rental expenses:

• Repairs and maintenance.
• Property management fees.
• Advertising costs.
  
  

Carefully reviewing these numbers helps you keep your rental business profitable in the long run.

How to Maintain a Good Cash Flow for Your Rental Business

The only way to run a profitable rental business is by maintaining positive cash flow. This ensures you can pay for all expenses while still earning a solid profit. There are two types of cash flow: positive and negative.

Positive cash flow means you are earning more from your rental than you are spending. What you're spending is less than what the business is generating. As a landlord, this is the goal you should be working toward.



Negative cash flow is when you are putting more money into the property than you are getting out of it. This means the rental is draining your finances instead of building them.

So, how do you keep your rental business profitable? Below are some proven tips to help you stay on the right track.

Charge the Right Rent Amount

If you’re unable to price your rental property correctly, you’ll most likely run into problems with your cash flow. When pricing your rental property, the goal is to ensure you charge a ‘Goldilocks’ amount. That is, one that is not too high nor too low.

If you charge a high amount, you may scare away prospective tenants. Consequently, you may experience negative cash flow due to high vacancy costs. Also, undercharging tenants isn’t an option, either. Why? While you may be able to fill vacancies quickly, you may struggle to optimize your ROI because you’d be leaving money on the table.

To determine the right rent amount for your rental property, due diligence is key. You can begin your research by interviewing landlords renting out comparable rentals. You can also take your search online and use relevant filters on reputable websites to know how your market’s prevailing market rates are.

Alternatively, you could simply hire a property management company to help you handle that aspect.

Determine Your Profits

Cash flow is all about math! Once you have determined how much rent you’re going to charge tenants, you must determine your profits. This is what will tell you whether the property investment is going to be worthwhile or not.

But to determine your expected profits, you’ll first need to know what your rental expenses will be. Examples of these include vacancy costs, repair and maintenance, landlord insurance, and property expenses.

After subtracting your operating costs from the rental income, you’ll get your property’s return on investment (ROI). Other granular methods of calculating a rental property’s ROI include: Cap Rate and Cash-on-Cash Return.

Draft a Proper Lease Agreement

You cannot maximize cash flow if you are not protecting your property and your income.

A strong lease agreement sets clear expectations for tenants and helps you avoid conflicts or financial losses. Just make sure your lease complies with all local and state landlord-tenant laws.

Include the following in your lease:

• Repairs and maintenance responsibilities.
• Early lease termination requirements.
• Clear rent payment terms.
• Rules and policies you want tenants to follow.
  
  

You can also include additional income opportunities, such as a non-refundable pet fee. Just make sure any fees you charge follow legal guidelines.

Minimize Rental Vacancies

To maximize your cash flow, you’ll need to keep your rental vacancies as low as possible. Vacancies can be costly, especially over prolonged periods of time. Having your property unoccupied, even for two weeks, can quickly eat into your profits.



That’s why it’s important to be proactive in this regard as a landlord. As soon as a resident notifies you that they will be moving out, start the re-renting process as soon as possible. 

Upgrade the Rental Property

The goal is to make your rental property stand out from the competition. Remember, there are other landlords that you are competing with. And if you fail to make your property stand out, you may have a hard time renting it out to a high-quality tenant.

The following are some telltale signs your property needs updating:

• Inefficient appliances.
• Worn-out faucets, lighting fixtures, and doorknobs.
• Peeling paint.
• Plumbing issues.
• Outdated flooring.

Also, make a point of inspecting your property every now and then to ensure you spot issues early.

Bottom Line

Now you know what it takes to keep your rental business profitable. While this list is not exhaustive, it covers key areas that can have a major impact on your success. C&C Property Management is a full-service property management company. We can take care of everything on your behalf for less stress and more profit. Get in touch with us to learn more.