A key to managing cash flow is knowing where your cash is going. Cash flow is defined as the movement of cash into and out of a business or project so for our purposes we’ll substitute an investment property for the business as we discuss cashflow.
How much income comes in and how much expense goes out are all measurable.
Identifying the cashflow allows you to know the movement of your money. What you want to do track this movement. What areas are absorbing the most of your money? Only then can you manage the performance of the property. Along with the typical regular expenses you want to know that the rent is collected consistently and the expenses of the Property Manager are not excessive. By the way, if the rent is irregular check with the property manager that the tenant is the issue and not the payment method used to credit your account.
When you start recording the income and expenses details you will effectively be starting a budget. A budget is the most efficient way of controlling the financial performance of your property because it allows you to see at a glance what is actually happening. Bear in mind that there are many aspects of your property that you cannot control. The Capital Growth for example and the interest rate being charged. Yes you could refinance if you think the rate is too high but in effect you have no control and the need to refinance actually confirms it.
Actually, you have no control over any of the costs or income of your investment. Other than the decisions about running the property such as buying, renovating, refinancing or selling you are at the mercy of everyone else.
Given that disturbing piece of information it’s clear that measuring and managing the performance is critical and that’s the same regardless of whether they’re cash flow positive properties or Negative Geared properties. In fact you can take that a step further and include any cashflow positive investment as well.
Measuring the cashflow of your properties could even identify a potential cash cow in your portfolio that you were unaware of. A cash cow by the way is business jargon for a business venture that generates a steady return of profits that far exceed the outlay of cash required to acquire or start it. A cash flow positive property could easily fall into this category.
Now if you are not used to budgeting you should consult with a Financial Advice service and take on board any financial tips they provide. In our view it makes sense to defer to an expert when the outcome is highly important.
Understanding cashflow is fundamental to making your financial position more efficient and at the same time incorporating your investment properties into the record keeping process guarantees all or any tax benefits are not missed by poor administration.
A Financial Advisor has the skills and expertise to guide you so you can manage your overall financial position. They are great at helping you plan for financial goals and you can integrate financial adviser services into your personal finance position as well.
At some point you will find that managing your cashflow and financial position becomes too complicated or overwhelming so that using financial advisers becomes the obvious action to take. This is quite common and many investors get involved in obtaining financial advice this way, clarifying their financial goals as an added bonus.
Above all else, a Financial Planner can help you to recognise any weaknesses in achieving your goal and provide protection in the areas of Insurance. Experience shows that investors are good at understanding investing but not as strong on understanding the risks that insurances can protect them from.
Talk to one of our Financial Planners today to find out how you can improve the results in your financial situation.