Property Investment Strategies for when your property accidentally goes cash flow negative

Property investment strategies for flexibility

It’s probably not realistic that any buy-to-let property investment will be cash flow positive 100% of the time. As I discussed in my last post, three fundamental tactics to prepare for negative cash flow on buy-to-let investment properties, the savvy property investor will be prepared to cope with negative cash flow. The strategies that I discussed in that article were:

  • Conservative cash flow projections
  • Investing with a cash reserve in place
  • Using positive cash flow wisely

By planning for the worst, you’ll give yourself the flexibility to handle a reversal of your positive cash flow position in most circumstances. You’ll come out of a period of negative cash flow in a healthy position, with your property portfolio intact. However, as an experienced property investor – and one who has had to deal with property with negative cash flow on numerous occasions – I know that even the best-laid plans can go awry.

In this post, I’ll look at just how flexible you may have to be if one or more of your investment properties goes into negative cash flow for a prolonged period.

The only constant is change

As a property investor, you’ve got to have a certain degree of flexibility. One thing that you can be certain of is that the property market is in a constant state of flux. It moves from one stage of the property cycle to another through weeks, months, and years. Property values rise and fall, as do interest rates.

Even when you’re investing for cash flow and not appreciation, your property investment strategies will evolve through the property market cycle. Throughout, cash flow is your friend; but if your buy-to-let does go cash flow negative, you may have to move quickly in a direction you hadn’t previously considered for your rental property.

Property investment strategies for accidental negative cash flow

There are several strategies that you might employ to combat negative cash flow. The first, of course, is to make up the shortfall using your cash reserve – that’s what it’s there for, after all. You could also consider the following strategies, which could be applied in a range of situations:

  • Refinance your buy-to-let mortgage

It will be most likely that the buy-to-let mortgage will be your largest single expense. You may be able to lengthen the term of the loan or reduce the interest rate. Either way, your payments will reduce.

Take advantage of the benefits of using a buy-to-let mortgage broker for your property investment and explore your financing options.

  • Consider short-term rentals

Ideally, your property will stand on its own feet, and a long-term tenant will support the financials. However, if you’ve invested near a business area, university, hospital, or airport, you might have the opportunity to rent for short-term, premium rental lets.

Search local businesses and services to find out if any employ short-term consultants or executives from abroad, for example. The company benefits from a cost lower than hotel rooms. The employee/consultant benefits from more private and homely accommodation. You benefit from higher rental income.

  • Turn the property into a holiday let

You may be able to let your property to holidaymakers if it is in an area favoured by tourists.

  • Convert to an HMO

If your property is large enough, you may be able to convert to a house of multiple occupancies. This could raise your rental income by some margin, though there will be costs associated with conversion as well as special landlord licensing laws to adhere to.

  • Offer a rent-to-own deal

This could be the ideal solution if your buy-to-let threatens to be cash flow negative for a prolonged period.

The tenant will have to pay a small deposit and a premium on the rental amount. This deposit and total payments above the usual rent are credited back when the tenant purchases the property at the end of the rent-to-own tenancy.

Under this type of tenancy, you’ll benefit from the deposit paid and the increased rent, though this eventually returns to the tenant as a discount on market value. Typical rent-to-own periods are between one and five years.

Recovering from negative cash flow

The strategies that I’ve outlined above should help you to hold on to your property if your cash flow position gets tough. Once you’ve come through a period of negative cash flow, you’ll find that your ability to invest and strategise successfully takes a huge leap forward. So negative cash flow isn’t all bad news.

If the worry of negative cash flow is holding you back from investing in property, contact the team at YPC Group on +44 (0)207 923 6100 to discuss these and other strategies that have helped property investors cope with negative cash flow.

Live with passion,

Brett Alegre-Wood

Brett Alegre-Wood
October 27, 2016

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