Property is like any other business, and to be successful you will need to learn how to manage your cash flow. The key is to take into consideration all costs at the start to make sure there are no hidden surprises along the way. This will help you predict and manage cash flow more successfully.
On a rental property you will need to think about many things such as mortgage payments, insurances, and any service or management charges that apply. I also personally factor in 10% of the rent as an incidental fund on all properties. Over my years in property taking this extra 10% has typically been enough to cover any maintenance and repairs on my properties. For example on a property where the rent is £500 per month, I allocate £50 per month which would give £600 per year for the property. Barring a major problem such as a boiler replacement, I have found this to be enough as an average to cover other repairs and safety checks legally required.
With regards to the bigger jobs such as boilers, I have always looked at the condition of these when factoring in how much the refurbishment will be on the property. If the boiler looks old, then this is a good bargaining tool and you should be looking to factor this in when you make an offer on how much you are willing to pay. By factoring in this incidental fund you can manage cash flow well, but also build and keep a pot for when things need doing, so you will not get caught short.
- Peter Iwaniszewski