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How to increase rental property cash flow

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The GoCardless content team comprises a group of subject-matter experts in multiple fields from across GoCardless. The authors and reviewers work in the sales, marketing, legal, and finance departments. All have in-depth knowledge and experience in various aspects of payment scheme technology and the operating rules applicable to each. The team holds expertise in the well-established payment schemes such as UK Direct Debit, the European SEPA scheme, and the US ACH scheme, as well as in schemes operating in Scandinavia, Australia, and New Zealand. See full bio

Last editedOct 20222 min read

Buy-to-let property is often seen as a sure-fire investment. While it can be used to generate a steady source of income, it has to be managed like any other business. Using a payment platform like GoCardless makes it easier for tenants to make rental payments on a regular basis, with options such as direct debits enabling you, as a landlord, to collect monies on the same date every month, rather than relying on the tenant to action a payment. Before exploring some of the ways to improve cash flow, it’s worth looking at how to create a buy-to-let cash flow calculator. Calculating cash flow accurately gives you a base to work from when taking steps to improve it.

Property cash flow calculator

The basic calculation for property cash flow seems fairly simple at first glance. It involves subtracting all buy-to-let expenses from the rental income generated. Any mistake made when drawing up a list of those expenses can be disastrous, as it means the cash flow expected differs from that which is actually delivered. This is especially problematic when the calculation is based on a prospective buy-to-let property. If the figure is higher than it should be, you might make a poor investment, whereas a figure which underestimates potential cash flow could stop you making what would have been a successful purchase.

Buy-to-let expenses varies from property to property, but those you always have to include are the following:

Payments due on a mortgage
Council tax on the property
Maintenance costs
Allowance for any periods when the property might stand vacant
Cost of utilities – gas, electric and water – for periods when you, rather than the tenant, are responsible
Cost of obtaining an Energy Performance Certificate (EPC)
Cost of gas and electrical safety tests

Check and double-check your figures to make sure you’ve included all expenses or potential expenses, and where estimates are made, carry out research for the most accurate estimates. Once you know your rental property cash flow, you can start looking at ways of improving it.

How to increase cash flow

There are several simple steps to improve your rental property cash flow. These are a few of the simplest:

Coordinate your outgoings and income

Make sure that your mortgage payments and other bills go out of your buy-to-let business account on a date in the month after the rent from your tenant has been paid. If the tenant pays rent on the 15th of every month, for example, contact people such as your mortgage provider, local authority and utility companies to shift your regular payment date to the 28th, ensuring that the money only leaves your account after funds have already landed.

Rental charges

When creating the tenancy agreement for your buy-to-let property, include a clause stating that rent can increase annually in line with inflation. Always keep the tenant fully informed of any intention to increase the rent, and only increase it to a degree which brings it in line with wider market conditions.

Direct debit

As stated previously, working with GoCardless makes taking direct debit payments from your tenants quick and simple. By setting up the direct debit on a specific day of each month, you always know exactly when payments will arrive, as well as eliminating the risk of tenants genuinely simply forgetting to make a payment. Unlike many other organisations, GoCardless only charge a flat fee per transaction, rather than the kind of management and set-up fees often charged by banks and direct debit bureaus.

Automate

Accounting software such as Xero makes it much simpler to keep your records up to date, making it easier to create a snapshot of cash flow at any given time. Documentation such as invoices, receipts and bank statements are digitised and stored on the cloud, making it simpler to track down the information needed if any dispute ever arises, or simply to analyse your cash flow and decide whether changes are needed. GoCardless integrates seamlessly with more than 350 partners of this kind, making it possible to create a genuinely modern and automated business structure.

We can help

GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.