How Real Estate Investors Can Manage Cash Flows

Real estate investors are more attracted to the market because they are betting on the future strength of rental properties. However, the economic uncertainty associated with the COVID-19 pandemic is affecting virtually every real estate asset class. Commercial demand has shrunk significantly, and unemployment threatens the recovery of the residential sector. Therefore, investors, as well as real estate professionals who own investment homes, must prioritize cash flow management. In the event of new economic difficulties in the future, you will want to have enough cash on hand to keep your business going even in difficult circumstances.

Managing your cash flow over the next few months is key: reduce your outflows and increase your inflows. To do this, arm yourself and your investment clients with the proper tools to measure cash flow, including a 13-week income forecast for each investment property. Calculate how much rent debt you can pay off, and you can see how much debt your money will run out of. Project debts, which can last several months, and the actions that can occur if they are not repaid after that period.

With these measures in mind, practitioners can explore the following five steps to manage and share cash flow with clients.

Contact your lender. Mortgages and property taxes are often the two biggest expenses for rental property owners. Investors should communicate regularly with their lenders to inform banks about their income situation and whether or not they plan to apply for financial assistance. If you own a rental property, you can adjust your profit forecast to reflect market conditions and discuss these changes with your partners and lenders. Many borrowers are not interested in foreclosing on commercial or multifamily properties, but rather want to work with borrowers to change their financing arrangements. Consider asking for an interest vacation, loan assumption or restructuring. You may also need to share information with your lenders and provide detailed financial information to change your financial contract. If you got a loan through a wage protection program, paying interest is one unforgivable expense.

Think about your property taxes. You may be able to challenge your property taxes. Falling markets, construction defects and other changes can reduce the fair market value of taxable property. If you think your assessment doesn’t take them into account, it may be worth objecting. Some states also offer appraisal adjustments related to natural disasters or tax credits.

Reduce or defer certain expenses. The provider may agree to modify payment terms or approve extensions. Consider source change or reconfiguration initiatives that can reduce costs. If you are working with a third-party management company, ask if the company can provide flexibility in the contract or renegotiate terms. Even if the landlord is not currently using the property, leave space available in the building to avoid breaking the lease.

Consider other ways to get access to cash. The federal high street loan program and the Emergency Indemnity Loan (EIDL) can provide the funds you need. You may be able to get a working capital credit limit to meet short-term needs. If you haven’t taken full advantage of your property, consider a mortgage loan. Look for non-bank lenders such as investment funds, family offices and private equity. They will pay higher interest rates, but many of them have more funds and resources to appraise than current banks.

Work with tenants to keep rents high. We have a federal eviction hold until January, but many tenants will recover and pay rent again. But once the moratorium ends, think hard about evicting tenants. A tightening economy can make it difficult to fill empty spaces. You can help educate commercial tenants about PPP loans or other programs available to businesses. Tenants can check to see if they have job loss insurance claims that could potentially offset rent payments and other losses.