Ways to Improve Equity & Cash Flow in an Investment Property
Successful property investors don’t rest on their laurels by putting their money in real estate and treating it as a set-and-forget asset.
They’re constantly thinking about how to improve their investment’s cash flow and its value so they can build income for now, and equity for future investment.
There are decisions you can make before buying to help ensure a property’s future equity trajectory is firmly upwards, and that its cash flow is as strong as it can be from day one.
But if you’ve already bought, don’t fret. There are things that can be done to help improve both as well.
If you’re in the market now and want to ensure your potential asset’s future equity prospects are as strong as possible, make sure you understand who your end buyer is likely to be. What are they like and what kind of home will they demand?
If you’re considering an inner-urban area favoured by trend-loving younger singles and couples without kids, the attributes of a location they consider important will be different from other demographics. For example, a convenient location close to the action will be a must, as will proximity to public transport. They might be willing to sacrifice on dedicated parking in exchange for convenience.
In terms of a property’s features, future buyers in that demographic will likely appreciate good entertaining spaces like a spacious living room or a bit of outdoor space. A huge kitchen might not be quite as important for a population segment that is often taking advantage of the newest restaurants and food destinations in the city. Adaptable spaces are important, such a second bedroom that could function as a home office or a space for mates to crash.
On the other end of the spectrum, an area favoured by young professionals will see properties that favour having more space. Consider where that demographic is likely to be in their lives when looking for a dwelling. They might be married and thinking of starting a family, so a tiny little unit is unlikely to be what they’re after.
Instead, they’ll likely seek a bigger space with multiple rooms, so they can have a nursery without giving up the spare room for guests or a home office for when they want to work from home. Also, a quieter location away from main roads and rowdy neighbours will increase its appeal. In addition, they’ll appreciate adequate storage for all of the ‘stuff’ that people tend to acquire when they have children.
If you’re investing in a suburb where families are the primary demographic, look for an investment with room to grow and outdoor space. Think a properly sized kitchen with all the mod cons, and definitely more than one bathroom. Also, a safe and quiet neighbourhood will be highly valued.
Importantly, do some digging to find out if the primary demographic you’re targeting is always going to be the dominant one. For example, a funky young enclave can sometimes transform into a gentrified family hotspot, meaning the investment you buy now could fall out of favour over time.
In a nutshell, you want to make sure what you’re buying at present appeals to your end buyer in the future.
Similarly, to boost your cash flow potential while holding an investment, think about the type of renters likely to flock to your area looking for somewhere to live.
What are they like? What will they want in a home? What are absolute deal-breakers that will see them run from a rental listing? If you can appeal to the dominant demographic, you’ll keep your vacancies as low as possible and maximise your income.
Boosters on the go
If you’ve already bought, never fear – there are some changes you can make to better cater to both your current tenants and the end buyer.
Some are relatively affordable and easy enough to accomplish and can deliver a significant return on your outlay.
Take a cosmetic renovation. A strategic lick of paint, spruce up of old kitchen cabinets and new handles, fresh carpet, different tiles and clean garden can help to both lift cash flow potential, and boost equity.
A more substantial renovation will obviously deliver much bigger returns. An extension that gives a property a new kitchen and living area, or extra bedrooms, will lift equity and cash flow. Mind you, it’s important to avoid overcapitalisation, so seeking independent professional advice is a must in this instance.
But looking at both current and future trends can guide a renovation to ensure it has the most impact. For example, a home office – or at the very least, a room that’s flexible enough to serve as a space to work from home, would be of huge appeal right now. And I don’t think that’s likely to change any time soon.
Improving the street appeal is a big one too. Clean up gardens, paint and refresh the property’s exterior, repair broken fences and put in a new mailbox so when potential buyers pull up, they’re enticed to come inside and look rather than speed off.
For cash flow, being on top of maintenance issues is critical in keeping good tenants happy so you don’t lose them and cop a vacancy and loss of income. It also makes business sense, given you’re taking care of your asset.
Depending on the area, some other things to consider for both cash flow and equity are heating and cooling, which can be especially important in certain localities, as well as security measures like prowler proof screens and secure entry doors and alarm systems.
At the end of the day, if you already have an investment and you want to lift its cash flow or equity potential, think about your market. Think about who they are, how they live and what they need and want. Then think of ways to give it to them.
If you’ve been thinking about investing in property, you need to have the experts at Atlas Property Group on your side. Our investing markets have already grown by over 15% in 2021. We are constantly analysing new markets that our clients are able to take advantage of as they progress towards their own large and fantastic portfolios.