How do I ‘cashflow hack’ my property?

Every active investor hits a handbrake – sooner or later.

Sometimes it’s servicing, other times it’s equity – but eventually there is something that will hold you back from moving forward in your investment journey.

Cashflow Hacking is one solution to the handbrake. It’s a 6-step approach to turbocharge any BRRRR strategy.

These 6 steps are the activities that – through my experience and analysis – have the biggest impact on both the rent and value of the property.

In this article, you’ll learn the 6 Cashflow Hacking steps and how to apply them to maximise your property’s cashflow.

Cashflow hacking step #1 – add an extra bedroom

Adding an extra bedroom to a property is an absolute must for anyone trying to execute a successful BRRRR strategy.

Why? An extra bedroom is the quickest and most cost effective way to increase the value and rent of a property.

So, it’s no wonder the question: “how do I add an extra bedroom” is the most asked by anyone thinking, or actively doing, a renovations-based strategy.

But not every house has the potential to be reconfigured in this way.

For starters, you need to buy a property that has a big enough floorplan.

• To convert a 2-bedroom into a 3-bed, you want a minimum of 80 square metres.

• To convert a 3-bedroom property into a 4-bedroom property, ideally you want 95sq m or more.

• To convert a 4-bedroom property into a 5-bedroom property, you want a minimum of 120 sq m.

The good news is that most houses built anytime between 1960 and 1980 have superfluous floor space that can be converted into an extra bedroom. This is usually found in the formal dining area.

So, often investors create the extra bedroom by converting the existing dining room … or in one particular instance: the kitchen.

Read the full article here to find out how to add an extra bedroom.

Cashflow hacking step #2 – assess rental options

Properties that have the capacity to be lived in by multiple households tend to have much higher rental returns.

This is typically achieved by having multiple separate dwellings on the same site. For example, one main house that is lived in by one family, and then a minor dwelling in the back garden that can be lived in by another.

However, as part of Cashflow Hacking, property investors tend to focus on a “top-down conversion”.

This is where an investor purchases a two story property. They then convert the upstairs and the downstairs into separate dwellings that can be rented to two different households.

For these sorts of conversions you need a large floor plan, but will need to keep the room count to below 6 – anything higher and your property wades into boarding house territory, which is when the council throws the compliance book at you.

So, it’s a good idea to limit plans to five or fewer bedrooms.

As an alternative, you might also consider a room-by-room rental conversion.

This is where an investor will convert a property so that each room can be rented separately.

This is a tactic made for those investors with brave hearts and deep pockets. And it’s just not always possible for every house.

But, if you can pull it off, a room-by-room rental property is almost always going to reward investors with higher rental returns. So, there is no guessing why it’s a highly desirable option for BRRRR projects.

Read our article for a full breakdown on how to convert your property into a room-by-room or top-down conversion.

Cashflow hacking step #3 – kitchens and bathrooms

Kitchens and bathrooms are the most popular photos potential tenants will look at.

In the eyes of a potential tenant, a run-down bathroom translates to an unclean one. A grotty looking kitchen will fare the same.

Kitchens are the social hub of the home, so tenants place a high value stake on it – long before they start arguing over who gets what bedroom or where the couches will fit in the lounge.

This is why it’s important for renovations-based investors to ensure they have a polished kitchen and bathroom as a part of any BRRRR project.

But it’s a fine line between how much value you get out of the money you choose to spend. Remember, these are rented investment properties. So don’t turn it into the kitchen and bathroom of your dreams.

Be wary of falling into the trap of projecting your own wishes into any investment.

Think about who your future tenant is going to be, and then kit it out accordingly.

For instance, don’t be afraid to opt for function and choose the lower-cost selection to keep the overall design cost down.

Having said that, there are some non-negotiables.

For instance, there is a target toilet-to-person ratio when it comes to intensifying existing properties.

Sometimes it’s not always possible to add extra bedrooms, when there aren’t enough toilets to facilitate the increase in people.

Typically, your 3-bedroom is going to come with one existing toilet.

But once you start dealing with 4 bedroom properties (by adding an extra bedroom), the need for a second toilet becomes desirable.

At 5+ bedrooms the extra toilet is non-negotiable. At this number of rooms, you are looking at adding another shower too.

For a full rundown of how to provide the perfect renters’ kitchen and bathroom, read our articles here: Kitchen renovation, Bathroom renovation.

Cashflow hacking step #4 – fixtures and fittings

Doorknobs and light switches may not sound like the blockbusters of property renovation – but don’t overlook them.

Collectively, these seemingly small items can redefine the whole perception (and price) of a property.

For instance, a brand new set of door handles can haul a dated property out of the 70s and make it feel more modern, like a new build.

That’s why it’s important to create a well-thought out design for your interior.

Similarly a yellowing light switch or a faded fabric lamp sconce means not only are the lighting fixtures dated, but also likely unsafe.

Most of the time, replacing these items is cheap, but can quickly add a lot of value and rental potential.

Be sure to do an upfront count of the fixtures that require replacing and estimate the investment required. Don’t be fooled by the often low price tags, as the cumulative effect of dozens of items quickly adds up.

Then add professional labour on top for the install, and the price goes up even further.

Investors have been known to save $1,500 on labour just by installing all the doorknobs themselves.

Read the full article about how to find out how to add value through fixtures and fittings.

Cashflow hacking step #5 – fresh paint

A fresh paint job may sound like a renovation “no brainer”. And to most people, painting seems like the easiest way to DIY your renovation.

In terms of bang for buck painting is one of the easiest ways to add substantial return and impression to your rental – if you do-it-yourself, correctly.

Sure, most people could give it a crack and make it acceptable.

But the cost, and time, required often comes as a surprise. This is because most of the value isn’t in the final paint job… It's in the preparation.

There is much more to it than simply picking up a paintbrush.

Prior to painting, it may be necessary to strip old wallpaper, fix fresh gib and skim the bumps on the walls.

This sort of work is extremely labour intensive, and can add a week to the original quote – if you were hiring a professional.

It means you have to be prepared to do that work yourself if you want to save significant dollars.

Then there’s the actual paint itself. More hard-wearing surfaces, like windows and doors, need different paint types. So, it’s not just a one bucket job. (Help yourself out and keep the same colour throughout different houses and paint jobs).

Remember, this is different to just the matte vs gloss discussion, which you’ll have with yourself in the hardware store.

Matte paint is on trend and will have a wider appeal to tenants, but it also absorbs more (toddler drawings and dirt) so will need to be refreshed often.

Whereas a satin finish might wipe clean more easily, and hide your amateur paintbrush fumbles … but it doesn’t look as trendy.

Cashflow hacking step #6 – flooring

The final step is to bring the carpets and flooring back to life. But, this doesn't always mean you need to lay new carpet.

Sometimes, a commercial carpet clean can add huge value to your rental for an exceptionally low cost – so long as you tell the tradies not to ruin the carpet during their other renovations.

In practice, there are a number of things to consider when assessing the flooring, which usually works off a principle of: Refresh, replace or restore.

For instance, if your carpet is frayed, burnt and has a couch footprint – then new carpet is your only option.

A fresh professional install will cost you about $4,500 for a 3-bed, 1 bath house.

Similarly, a sand and polish may be suitable for revitalising your hardwood floors – unless you plan to reshuffle the cabinets and appliances around.

In this instance, your floor might become collateral damage.

As with all Cashflow Hacking principles, flooring is a fine balance between durability, and suitability, for the property and the tenant.

For instance, sometimes the more practical option will take precedence over cost, or what is most trendy.

Remember, this is a rental property - not the property of your dreams. It’s got to withstand anything your tenants will potentially (and literally) throw at it.

How do cashflow hacking principles increase the rent?

These 6 Cashflow Hacking principles immediately increase the rental return and overall value of a property.

This increase in rent is necessary, especially after the recent interest deductibility changes, which tax existing properties more heavily.

In addition, you are also creating equity that you can lean on to buy another property sooner than you otherwise would be able to.

These steps are an evolution of the typical BRRRR strategy, and are our playbook for how to do this strategy the right way.