Turn Sleeping Equity into Active Cash Flow: How To Create Income-Generating Property

Coins in soil with young plants on blurred background. Passive income-generating property concept.

Holding income-generating property is a great for your longterm wealth. But how can you turn existing equity into cash flow? This article provides a few ideas. 

Consider this surprisingly common situation: someone owns millions of dollars in real estate properties but has literally no cash from these assets. Other than the routine value appreciation, these properties are basically just sleeping giants, doing nothing and serving little to no purpose.

They don’t bring an income, and, because of taxes, upkeep, and other expenses, often cost money. You may be surprised at how often we see this in the real estate industry.

The simple answer is to sell these assets and place the money somewhere else; perhaps a cozy mutual fund.

But there are other options. In fact, it may be possible to take these valuable but sleeping assets, wake them up, and put them to work. When done right, this can be far more profitable than converting them into a different type of investment.

While nothing guarantees success with investment property, these tips can help you turn existing real estate property into income-generating assets.

How to Take Your Inactive Real Estate and Turn Them Into Income-Generating Property

First Assess Your Expenses First

The first step in turning your properties into income-generating assets is to understand your expenses. More specifically, you need to understand which properties are draining the most cash from your bank account.

Properties can have a variety of expenses depending on the type of real estate and where it is located.

Every property will, for example, have some taxes that need to be paid to the local governments, but a vacation property on a lake, river, or near the ocean may have additional taxes. Properties in high-value areas, or properties that are simply valued higher, may have high taxes as well.

There can be time and expenses related to property upkeep, and some properties use more energy than others, or require more mowing, snow removal, or tree trimming.

The bottom line is simple: you need to understand what properties cost the most to own. This information can then be used to make future decisions about income-generating property.

Assess Which Ones are “Rentable”

Lakeside cabin viewed from water
A second home could be an income-generating property if it is rented to vacationers when you are not using it.

Virtually any property can be rented out for some purpose, but certain properties are more “rentable” than others. That is, they are more likely to bring a strong income on a consistent basis. Understanding whether a property is rentable or not can be complex, but you essentially need to assess whether or not the property is livable or workable as a commercial space, and whether you’ll get a decent monthly price.

Location, current quality of the property, and access to local amenities can all drive whether or not a location is “rentable.”

Sell Non-Rentable Properties, Buy Rentable Properties

Now that you know which properties are costing you money and which ones are most likely to be successful as a rental, you need to need to make a tough choice. It’s time to sell the ones that are not going to bring a steady cash flow.

Many people are concerned with the tax implications of selling a property. Specifically, capital gains taxes can eat into any potential profit. However, if you immediately use the proceeds of a sale and place it straight into a new investment property, you can uses a tax break called the 1031 exchange. This will help you convert properties you currently own into an income-generating asset.

Find Fast, Easy, Accessible Ways to Boost Income

To get financial income flowing, you probably have to start with a trickle. Perhaps there are fast, simple ways that you can turn assets into income starting today. For example, you could rent out a room in your home (an extreme step for many, but still an option), turning your house into an income-generating property. Or you could place one of your properties on the market, as a residential, commercial, or even vacation rental. This will give a slight boost to your income that you can use to upgrade and enhance other properties.

Turn Ugly into Beauty

Many of your properties may not be immediately ready for the rental market. While some may need major structural repair (aka expensive repair), some might simply need a refresher. Perhaps taking an ugly house and giving it a makeover will increase its potential.

Fresh paint, new flooring, and some attractive shutters can make the property more appealing. You want to aim for quality, but not expensive materials in order to keep your costs down and maximize profitability. Simple steps are often all that’s required to create an income-generating property. 

Refinance Existing Mortgages for Better Rates, Longer Terms, or Both

If any of your properties have mortgages, take a hard look at these loans to see if they should be refinanced. Perhaps you could extend the terms to lower your monthly payments, or perhaps you could refinance to secure a lower interest rate. Either way, you’ll be able to reduce your monthly expenses and start tipping the scales towards profitability.

Don’t Cling (Too Hard) to Nostalgic Homes

This is a hard one, but it needs to be discussed. Many property owners didn’t seek out their real estate; it was inherited, which adds an emotional level to the decision process. We understand wanting to keep your grandfather’s lake cabin or family acreage, but if the property is creating stress and financial drain, it may be time to sell.

It’s a hard choice to make, but sometimes releasing a family home brings more relief than sadness. It may also be possible to use a 1031 exchange to reinvest the proceed to a more rentable location, further maximizing profitability. (Here’s an idea: if you are struggling with the thought of selling an inherited but burdensome property, perhaps some of the proceeds could be donated to a charity in honor of the previous owner.)

Work Hard, Treat it Like a Business, Not a Hobby

Above all, you have to treat your investment properties like a business. Work hard, don’t “fall in love” with properties, and always keep a disciplined eye for costs, revenues, and profits. With a sustained, steady approach, you can take your existing equity and turn it into income-generating property.

The Right Loan for Your Income-Generating Property

Part of a successful investment-property portfolio is an affordable mortgage loan. Contact our staff today and find out how we can help you secure the right loan for your specific needs.

From small residential properties to large commercial lots, we can help you find the perfect financing to enhance your monthly cash flow.

GET AFFORDABLE LOANS FOR YOUR INVESTMENT PROPERTY

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I hope you enjoyed reading this article. It's my goal to keep you updated with the latest real estate mortgage news. I'm proud to provide you with 100% original and unique content. Subscribe now to get high quality real estate mortgage content and articles delivered directly to your inbox. Chad Baker is Regional Manager for Cross Country Mortgage. Chad is consistently recognized in the top 1% of mortgage originators in the United States 2011-2019. Got a question for Chad? Call (858) 353-8331 or submit your question online