Summary

This video provides a step-by-step guide on how to handle a rental property that is losing money, emphasizing the importance of data-driven decision-making and proactive solutions. It covers analyzing income and expenses, addressing tenant issues, reducing operating costs, increasing income, negotiating debt, and considering the possibility of selling. The video also shares tips for future investments, such as buying properties with proven cash flow, stress-testing deals, and building reserves.

Highlights

•  Analyze Finances: Accurately track income and expenses for the past three months to identify the root cause of negative cash flow (income, mortgage, taxes, insurance, utilities, tenant base, or occupancy).
•  Tenant Management: Prioritize finding and retaining high-quality tenants by running thorough background checks and enforcing lease agreements, to minimize vacancies and turnover.
•  Reduce Expenses: Scrutinize operating expenses like property taxes and insurance to find opportunities to lower costs without sacrificing essential coverage.
• ⬆️ Increase Income: Explore avenues to boost income through strategies like location premiums, added amenities (carports, storage), and potentially converting to short-term rentals while being mindful of increased management efforts.
•  Debt Management: If struggling with debt, proactively contact the lender to discuss options such as modifying the term, stretching amortization, or adjusting impounds, while understanding that selling might be the best option if the numbers don’t add up.

TRANSCRIPT:

So, your rental property is not working. Maybe you’re negative cash flow. Maybe your tenants stopped paying. Maybe your expenses are going up. Could be a number of things. First off, don’t panic. I’ve definitely been in this spot before. And today, I’m going to walk you through exactly what I would do to unpack this so that you can actually start to make some decisions step by step when a rental property starts to go south.

Whether you’ve got one property or a small portfolio, this is how you protect yourself, take control, and turn things around. Most people try to emotionally justify a deal. They let their emotions run hot and they don’t make great decisions. But the numbers, they do not lie.

Here’s what you do. First, pull out the last three months of your income and your expenses. Don’t guess. Take a look at your bank account, your rent deposits, your repair invoices—every single thing that you have. Then, calculate your monthly income. It’s as simple as income minus expenses minus debt. Those are the three categories that you have to focus on and they’re all very different, and the solutions for each are very different.

If you’re in the red, the question is how much and why? Is it the income? Is it the mortgage? Is it the taxes? Is it the insurance? Is it utilities? What is it? Each one can be segmented. It could be even your tenant base. Could be your occupancy. Could be lots of different things. But the key is to put it all down on paper and identify the problem—and then tackle each problem one by one with a very specific plan. You’ve got to know exactly where your money’s going and where you’re losing the opportunity to make more. That could be through income or it could be through the expenses. That’s how we fix it.

So, if your tenant’s not paying or maybe they’re delayed every month, that’s your first issue because that’s the income that pays all the expenses. Oftentimes I see occupancy problems, concession problems, high vacancy problems, high turnover problems—all as a result of one thing: a poor tenant base. That could be something that you did, it could be something your property management did, or it could be something that you inherited from another seller. But either way, the contract or the lease is what the tenant is supposed to abide by, and it’s also what you use to enforce.

Now, you have to be careful here because landlord-tenant laws do apply on both sides, but always follow the lease. If they’re not paying on time, then issue the proper notices immediately and make sure that you enforce the late fees. Do not delay, because the longer they go without paying, the more you have to lose—short-term and long-term.

If it’s a high-maintenance tenant burning up your time and your energy, you know who they are. Then it’s within your rights not to renew them. I always say a wrong tenant in a good property can turn it into a bad investment real fast.

I cannot stress the importance enough of running a criminal and credit background check on each and every person and making sure that whoever moves into your unit can pay you on time regularly. Then the only thing you’d have to focus on at that point would be the expenses.

A vacant unit creates all kinds of expenses—in the form of maintenance, marketing, and more. Some people may not even know they have a vacancy, but a vacancy is really just like an expense. So take care of your tenants, find the very best ones, and you’ll have stable cash flow for a long period of time.

Second, take a very hard look at your operating expenses. There are a number of expenses, just like in your personal life, that hit a rental property—things like taxes, insurance, utilities, capital work, or things you might want like new appliances or flooring. These are all costs you could have personally or as a landlord.

The first thing to look at is: where can you lower costs, and can you do anything differently? For example, if you’re outsourcing to a third-party property manager or have a staff, which is also an expense, consider whether you can do it yourself or replace them with someone more cost-effective.

When a property has high vacancy, you also have high marketing costs, because you’re spending money to attract tenants. High vacancies mean high turnover and maintenance costs—paint, flooring, cleaning, and more. There are many ways you can question and control your expenses. For example, you can appeal your property taxes annually, switch insurance providers, raise deductibles, or drop unnecessary coverage.

If you haven’t had any losses and your insurance costs keep rising, you’re in a good position to negotiate or switch providers. This isn’t about being cheap—this is about protecting cash flow while regrouping.

Annually, it’s a good idea to review all property expenses. Don’t forget your escrows for things like insurance and property taxes. Some lenders over-impound those. Also consider replacement reserves—lenders often require them for things like roofing or painting. These are all things that could be built into your monthly payment and need to be reviewed yearly.

Now let’s talk income. There are lots of ways to increase income—on the rent side, occupancy side, and other income side. We look at things like location premiums. Maybe one unit has a better view. We’ve added carports, garages, storage units, and even private yards. These add income without touching the rent.

The one thing you can’t do is raise rents in a market that’s already at its peak. What you can do is increase occupancy and care for your tenants.

There are two ways to run a property: you can charge just under market and keep long-term tenants, or you can push rent to the max, which may increase turnover. We prefer staying slightly under market so tenants are motivated to stay.

There are also other income opportunities—smart home tech, storage, parking, pet rent, laundry, furnished units. Even before Airbnb, we offered short-term furnished rentals. These generate higher income, but also require more work and are less passive.

You can’t force rent hikes into a bad experience—that will create turnover.

Next, look at your debt. If you’re underwater monthly, call your lender. Ask to modify the term, stretch out the amortization, fix the rate, or adjust impounds. Lenders do not want your property back. Defaults are bad for them, so they’ll often work with you to avoid foreclosure. Be honest and work through solutions—it can be a win-win.

You might need a short-term cash injection to save equity. That’s not always bad if you’re protecting your position. But don’t refinance into a worse deal just to kick the can down the road. That can backfire. The goal is to fix the root issue, not delay it.

Sometimes, the best move is to sell. If the numbers don’t make sense, be honest with yourself. If you decide to sell, run a CMA or BOV (broker’s opinion of value). Make the property show-ready—fix deferred maintenance and avoid looking distressed. Then figure out: are you in the money or out of the money? If the loan is higher than the value, you may need to bring cash to closing. If not, you may be walking away with equity and stopping the bleeding.

In either case, talk to your CPA. There are tax consequences for both types of sale. You may have capital gains—or you may be able to use a 1031 exchange into another property. Either way, get tax advice before moving forward.

The goal is to stop the bleeding on a negative cash-flowing property.

Let’s be real—this is how we learn. I’ve made many mistakes myself, especially early on. But 30 years later, here’s what I always do:

1. I only buy properties with proven cash flow and potential upside, but I never bank on appreciation alone.

2. I stress test every deal—what happens if it’s vacant for a month?

3. I build reserves. I like to keep 3–6 months of expenses in cash reserves, so I’m never caught off guard.

During the pandemic, we had strong cash reserves and didn’t need to panic. A bad deal can set you back, but a smart deal can set you up long-term.

If this video hit home and you’re stressed about a rental property, negative cash flow, or things not going as planned—you’re not alone. Click the link below and join us in Texas this July. Bad months happen. Tough deals happen. But what you do next is what separates those who survive from those who scale. Get honest. Take action. Get support. That’s how people win.