5 Ways Real Estate Investors Can Manage Cash Flow

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Real Estate

Real estate investors are becoming more attracted to the market, betting on the strength of rental properties moving forward. But the economic uncertainty around the COVID-19 pandemic is affecting nearly every asset class of real estate—commercial demand is way down and unemployment threatens the recovery on the residential side. So, investors—as well as real estate professionals who own investment homes—should make cash flow management a priority.

 

1. Talk to your lender. Mortgage payments and property taxes are often two of the biggest expenditures for rental property owners. Investors should communicate with their lender regularly to keep the bank in the loop on their income situation and whether they plan to ask for financial help. If you have properties that are in a lease-up period, you may want to adjust your profit forecast to align with market conditions and discuss these changes with your partners and lenders. Many lenders are not interested in foreclosing on commercial or multifamily property and would rather work with the borrower to amend the financing arrangement. 

 

2. Consider your property taxes. You may be able to contest your property taxes. Market declines, construction defects, and other changes can decrease the fair market value on which a property is taxed; if you think your assessment doesn’t take those into consideration, it may be worth contesting. Some states also offer disaster-related valuation adjustments or tax deferrals.

 

3. Cut or postpone certain expenses. Vendors may agree to change payment terms or grant extensions. Explore sourcing changes or reorganization initiatives that might save money. If you work with a third-party management company, ask if the company can provide flexibility on your agreement or renegotiate terms. Maintain spaces in buildings as usable to avoid violating any lease agreements, even if tenants aren’t currently using the property.

 

4. Consider additional ways of accessing cash. The federal Main Street Lending program and Economic Injury Disaster Loans (EIDL) may provide necessary funds. You may be able to obtain a working capital line of credit to cover short-term needs. If you haven’t leveraged your property to its capacity, consider a mortgage refinance. Look for non-bank lenders, such as investment funds, family offices, and private equity. While you’ll pay a higher interest rate, many of them currently have more funds and evaluation resources available than banks.

 

5. Work with tenants to keep some rent flowing. Though we’re under a federal eviction moratorium through January, many tenants will recover and resume paying rent. But think carefully about evicting tenants once the moratorium ends. The tightening economy could make it more difficult to fill vacancies. You can help educate commercial tenants about PPP loans or other programs available to businesses. Tenants can explore whether they have a claim on business interruption insurance, which could potentially cover rent payments and other losses.