How to Manage Cashflow in the Property Industry
Cash flow is a crucial aspect of managing any business - but perhaps nowhere is that more the case than in real estate.
Whether you are an investor managing the flow of tenant rents, debt repayments, interest rate fluctuations, banking covenants or property management costs, or you're a developer with the additional costs associated with delays, overruns, and material shortages to name but a few, in a property business, cash is very often king.
Here are 5 tips for managing cash flow in the real estate industry:
- Create a budget and stick to it as much as possible: This will help you keep track of your income and expenses and ensure that you have enough cash available to meet financial obligations as they fall due, as well as reserves for the unforeseen.
- Diversify your portfolio: Spreading risk and generating multiple streams of income across a range of asset types and locations can ensure that you are minimising exposure to market changes beyond your control.
- Stay on top of your finances: Regularly review your financial statements and cash flow projections to identify any potential issues and take action to address them before they become major problems.
- Manage your expenses: Carefully review your expenses to see if there are any areas where you can cut costs.
- Gearing: Ensure that debt levels are manageable, allowing for changes in interest rates over and above market expectations.
Most of these tips are common sense but in practice, after a decade of low-interest rates and rising values, the market has enticed many part-time landlords to overstretch financially and fail to diversify. Many have put all their eggs in the real estate basket and are now finding the pain close to unbearable. If I told you that I first wrote much of the above in 2009/10, it would serve as a reminder that whilst common sense is timeless, our memories are short and can be blinded by a belief that the good times will never end. Sadly, history tells us that they always do and it is the skilled, sensible, conservative and prudent that prosper in the long term.