Rental Income and Cash Flow Management

For the operation of your rental property, cash flow management will be a large contributing factor in your ultimate financial success. The responsible management of your property's cash flow will certainly be what "primes the pump" for growing your finances and rental property investment program. Let's cover the essentials of successful rental income management…

The Importance of Saving

We're all familiar with the dismal savings rates of individuals nowadays. With the constant lure of credit card company radio, TV and mass mailing advertisements offering free credit cards, it's very tempting to fall into the credit trap.

This easy credit can develop excessive spending habits that place many individuals on the "financial treadmill" which eventually leads to their financial hardship and ruin. At this point, their chances of developing a successful rental property investment program will certainly be an uphill battle. Developing the habit of "buying what you need rather than what you want" could be the silver bullet that starts you on the path to financial freedom!

In today's society, self-discipline is needed more than ever to develop the habit of saving mentioned above. Just as you need to save in order to accumulate the down payment to purchase rental property, so will you need to save throughout your investment program in order to build a strong financial foundation.

Responsibly saving the cash flow generated by your rental property, as opposed to spending it needlessly, will allow you to eventually accumulate an additional down payment to purchase a second property or upgrade to a larger or better one. And the process keeps building like a snowball rolling downhill. The only way to reach your investment/retirement goals is with time, good property management, and frugal use of cash flow.

Establish Bank Accounts for the Property

For your rental property, it is a good practice to establish both bank savings and checking accounts that are separate from your personal account. These accounts should be for the operation of the rental property only. The savings account should be interest bearing and contain all tenant security deposits, pre paid rents (if any), and positive cash flows. The checking account should contain rent deposits that are needed to pay the operating expenses for the property.

As cash in the savings account starts to grow, it may become very tempting to spend it on personal needs, such as vacations, a better car, etc. This is where self-discipline and responsible cash flow management comes into play to prevent depletion of savings which "short-circuits" your financial progress.

For more in-depth information about cash flow management, please visit The Landlord's Library book collection. It's the ultimate, one-stop source for practical, comprehensive information on the entire subject of residential landlording.

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