Cash Flow Hacks
I lodged my tax returns earlier this week and had to reflect on how much I have learned about managing my cash flow over the years. I have picked up some ‘cash flow hacks’ if you like, learned from John, my other mentors and even Custodian clients!
I’m learning new ones all the time, but here are my ‘cash flow hacks’ for now:
Tip #1: Tax File Variations
Come tax time, I used to see the tax return I got as forced savings.
However, my accountant helped me see it a different way. He said this to me a couple years back:
“James, you’re being too generous to our Government. Your tax return this year is $30,000. The Government has had this money throughout the year, and kept it in the bank account without paying you any interest. If your home loan is 4% then you have paid as much as $1,200 in interest throughout the year on your home loan just so you could lend the Government $30,000.”
So I filed a tax variation and haven’t looked back since.
In fact, it came in very handy this year because at one point I had a tenant break a lease with me and at the same time had my termite inspection and roof gutter clean due on another property. That would have stretched my cash flow in years gone by, but this year was no stress.
Tip #2: Property Managers pay my bills
Once upon a time getting everything to my accountant at tax time was an all weekend job for me. 3 investment properties, a car used for work purposes and all the insurances – there’s a fair bit of admin there!
However, today I get my property managers to receive - AND pay for - all my bills relating to insurance (landlord and building), rates, water, pest control, roof gutter clean and any other maintenance items from time to time. This way at the end of the year I get a comprehensive statement from them with all my income and expenses listed, and the net income.
I then download my bank statements for the financial year and my accountant has everything he needs (he has my depreciation schedules from recent years).
Tip #3: Know your loan dates, especially if they’re INTEREST ONLY
All my investment loans are 5-year interest only, and 25 years principal and interest after that. I set a reminder for myself 6 months before the interest-only periods expire on these loans and try and book in to sit down with my mortgage broker and get him to put together some options for me to consider. I still want to acquire properties so cash flow and servicing is important to me.
As a result, I recently refinanced one of my loans to a fresh 5-year interest only period. What is important is that you make the time to sit down with your broker at least 6 months before the loan changes so you give yourself time and flexibility to consider your options and plan for them.
Tip #4: Set your lease dates at different times throughout the year
I once had 2 leases expire one week apart. Fortunately for me, one of the properties was tenanted within a week of the previous tenant vacating. The other property took 4 weeks and if both were vacant for a month at the same time that would have been really inconvenient for my cash flow management.
So I put one of the tenants on a 6-month lease and the other on a 12-month lease, meaning I wouldn’t run into that cash flow risk again.
I have all my leases expiring at least 2 months apart from each other. I got lucky once, I didn’t want to tempt fate again!
These are 4 hacks that have helped me manage my cash flow. I’ve learned most of them the hard way and the others from those more experienced than me, or with more properties and cash flow risk than me!
Hope they help you, too. Perhaps you can share some of your cash flow hacks too.