Cash flow is the life blood of an investment. Without cash flow the investment can rightfully be called speculation.

Many investors bought in Czech Republic at a time when cash flow was not positive unless large amounts of cash were plunked down as a deposit. However, that does not mean that you just want to give up on your investment, call it a write-off and move on. Much can be done to improve the cash flow of your investment by tweaking little things.

Here are our top tips for maximizing cash flow on your Czech ‘buy to let’ property investment which, potentially, could result in you putting a staggering 30 000 CZK in savings into your pocket each year.

1. Make sure your property is not insured twice (savings: 100 to 200 CZK/mo)

It is usually the case that the bank granting the mortgage will require proof of property insurance before releasing the funds. Many buyers take out new insurance, not realizing that there is often insurance which the building association also takes out on the building.

You will never get paid twice for the replacement of the same property so this is a waste of money.

Note: it is good to check what exactly is covered by the building association’s insurance because sometimes it would not replace the finish inside the flat (ie. flooring, kitchen, furniture) and also would not cover liability. However, these items can be added separately by the owner still resulting in savings of at least 100 CZK/month.

2. Including water usage in the utility fees paid by the tenant (savings: 100 to 250 CZK/mo)

Although not common in other parts of the world it is normal here for the tenant to be responsible for the consumption of water.

3. Always collecting more than the normal monthly deposit required by the utility companies – otherwise transferring utilities into the tenant’s name (savings: 200 CZK +/mo)

Try to transfer whatever utilities possible into the name of the tenant. When not possible, be sure to collect more than the average monthly deposit required by the utility company.

Usually the meters are only read once a year which means your tenant could be long gone having racked up a monster utility bill which you will never collect from him. It is always easier to return money to a tenant than try to collect more after they have moved out.

4. Minimizing vacancy periods by having a lengthy cancellation (savings: up to one month’s rent/year)

Make sure to have a lengthy notice period (2 to 3 months is normal here) in order to give yourself ample time to source another tenant including renewing advertising, showing the flat and getting another contract signed.

If you are in a strong market and you are confident about getting another tenant quickly, it is possible to give exceptions to individual tenants but having a lengthy period can save vacant periods of up to a month.

5. Minimizing turn-over (savings: up to one month’s rent per year)

Is there some persistent problem with your property which results in tenants not being content and moving before an average tenancy period? Every time your property changes tenant’s hands it costs you with advertising, showings, vacant periods and move-in/move-out damage.

Here is a previous article on how to keep your quality tenants in Czech Republic: http://www.czechpoint101.com/newsletter/?p=380.

6. Minimize bank fees (savings: 200 to 500 CZK/mo)

Bank fees in Czech Republic are disgusting.

There is no other way to put it. Especially coming from a very competitive banking atmosphere like I did in Canada was I shocked at the amount of money that went out the door for bank fees.

But is there anything you can do about it? Yes there is! Especially if you purchased property through an SRO or Czech company.

In such a case you have a terrible layer of two to three bank accounts. Sometimes you will have your SRO bank account, then a personal bank account which is mandatory with your mortgage and then your mortgage account. All, in fact, are necessary according to bank lending requirements and state laws regarding SROs. What can be done in this case?

We can strongly recommend setting up a bank account with Fio for your SRO. Fio offers a banking services which has almost no fees. It’s accounts are covered by the same insurance offered by the State of up to 50 000 EURO in one account so your money is safe.

For an SRO which is only held for the purpose of owning property, this can save up to 500 CZK a month in bank fees.

If you don’t want to do this, at least minimize the number of times you get printed bank statements, cancel your bank card and look at all other ways to reduce the fees you are paying.

Do you think some of these suggestions have a return that is too little to act on?

Think of how an eves trough combines even a small amount of falling rain over a large area to equal a sizable amount of water coming out the spout. It is the same with your rental property, by taking care of all these little things you can do each month it can result in a sizable return at the end of the day.

Nathan Brown (Czech Point 101)

You’ve spent time picking the best apartment in the complex. Southern exposure and a huge balcony will be a pleasure for any tenant. Hey, this is a place you would love to live in. Instead of installing the standard kitchen you splurged on some extras, upgrading to better quality appliances and a dishwasher (not common in Czech Republic). Everything is ready for your first rental.  

You show the flat to the first viewer. She is well dressed and seems pleasant. She says she works on her own trade license and is quite successful at it.  Yes, she is interested in the flat. It seems too easy! Do you sign the contract and hand them the keys? 

 Stop for a second and take a breather!  

You have put down of your own money, perhaps 20 000 GBP, perhaps much more, on this property. In fact, including the money you have borrowed, it most likely is worth 100 000 GBP +.  

If you had a Ferrari worth this much would you lend it to just anyone to drive or would you be pretty particular about who you let take the steering wheel? You can bet that you would be incredibly particular about who took your car for a spin and it is the same about how you should proceed with your property. Of course, the amount of damage that can be done to a Ferrari in a short time as compared to a property is a little bit more but the value is the same. It really doesn’t take long to damage a flat way beyond the damage deposit.  

As described in our recent article on the Czech landlord and tenant laws (to read this article please go to the following URL: http://www.czechpoint101.com/newsletter/?p=123), using a direct contract puts an owner at a real disadvantage in case of dealing with non-paying or destructive tenants. Because of this and even with CZECH POINT 101’s unique contract system, it is incredibly critical to have a very good system of sourcing quality tenants.    

The fundamental step to this is collecting and checking, yes really phoning, the references. Just trusting your gut feelings has gotten many people into problems before. Your guts do play a part but don’t play a Russian roulette game with your investment. In some countries, relying only on your guts can get you into legal problems as you can be sued for discrimination. I have never heard of a case like this in Czech Republic but it is really important to have a system for screening tenants.  

Let me warn you first that screening of tenants is not common in Czech Republic. Most tenants are used to the process where the only screening done is if you put the money on the table. So it is important to explain to them why you need to do this. As a company, we have maybe 1 out of 50 who walk away because of it but probably we wouldn’t have wanted them as renters anyway. A good renter has nothing to hide. 

First, you should have a rental application which the prospective tenant needs to fill in to its entirety. The good tenants are the ones who can fill it in on the spot. The bad ones will start going through and you will hear excuse after excuse about why you can’t contact their boss because they haven’t actually signed the contract yet, how they’ve lived at home before this so there is no rental reference and oh, sorry but they don’t have any backup references because their mobile got stolen and they lost all the numbers. Good-bye!  

You should have the policy – no references, no rental.  

When checking references it is also important to be clever in the way you do it so that you can be confident that you are really speaking with their previous landlord and not a friend posing as such. 

One very good method I learned for doing this is that when you first phone do not state the exact reason for your call. Start off by saying that they were listed as a reference for so-and-so (no clue as to whether it is for rental or potential employer, etc.) and then ask the first question: ‘Can you please tell me how you got to know them’ or ‘Can you please describe your relationship with this individual’.  With no clue, the phony previous landlord will have a hard time knowing what to answer. 

Interestingly, when I used the above approach checking references recently for one prospective tenant, the ‘former landlord’ said that the prospective tenant was his girlfriend. The method works and you should use it. 

When you do contact a valid former landlord, there are many questions which are good to ask such as how long they have lived in their property, whether they paid on time, etc. but a critical one which will tell all is the question of whether they would rent to these tenants again if they had the opportunity.  

Sourcing good tenants in Czech Republic takes time, but the careful landlord will be paid back for these efforts many times over.

Nathan Brown (Czech Point 101).

©2009 CZECH POINT 101 s.r.o.

By Nathan Brown

Tenants are the life blood of an investment property and in order to have the best return over the long run for the property, it is essential to attract and retain top quality tenants. Reducing vacant periods is critical to cash flow.

In this article we are going to assume that you already have sourced a quality tenant. This is the first and most important step of being successful with an investment property. Ninety percent of the success of your property is in this initial step.

The best piece of advice I have ever received on this subject of retaining top quality tenants is to view each of them as customers.

It is vital in your relationship with your tenants to be friendly with them. Don’t change once they’ve signed your contract and are legally bound to the property.

However, there is a fine balance between being friendly and being friends. Being friends means consumption of your time, phone calls in the evening about trifling matters and it can make it difficult to deal firmly with nonnegotiable matters such as the timely paying of rent.

Here are six keys to causing a tenant to turn into your best customer:

1. Always give plenty of warning before having to enter the flat, whether for maintenance, inspection or otherwise. Contracts in Czech Republic can have a notice period from 1 day to 3 days prior to entrance but don’t insist on the letter of the contract if the tenant is not agreeable to a certain day. Be flexible and reasonable.

2. Change locks if requested and even suggest it in certain situations. If a tenant loses their keys or their property is broken into, change the locks for them. Even if they don’t request it you can suggest that they do so for their own safety. They will appreciate the thoughtfulness.

3. Have portable electric heaters available in the case of emergencies. Sometimes construction or unforeseen circumstances (like the Ukraine blocking natural gas flow!) will cause the property not to be heated properly. This can be particularly true in new construction or reconstructions when the tenants are the first ones to occupy and glitches have not been worked out.

4. Remember their names! Nothing shows personal interest more than being able to remember the names of your tenants if you see them around the building or town. Also, any other specific details about their life such as where they work or family member’s names. Warning – if the tenant is Czech, sometimes additional questions may be viewed as intrusive rather than personal interest.

5. Listen to your tenants with both ears open and your mouth shut. Practise good listening by looking them straight in the eye, asking additional questions and not jumping in to offer a quick answer.

6. Redecorate before your best tenant moves out. It is often common practise to repaint or decorate an apartment after the tenants have left. However, if you notice that there are things which need attention while the tenant is there, you can be guaranteed that the tenants notices them also and might be looking for an apartment in better condition. Offer to paint the flat or make necessary improvements before the tenant gives you their notice.

In the buy to let business the easiest part is to manage the property itself. Much more difficult is to manage people.

Become skilled at managing the people in your property and you will find the key to successful buy-to-lets.

Nathan and his team are based in Brno, and can advise on finance, management, fit outs, and resales in the whole of the Czech Republic – he has successfully managed the completion and rental of over 200 apartments for us previously.  If you have a question relating to investing in the Czech Republic – you can email Nathan directly at Nathan@czechpoint101.com or email Daniel at investments@propertysecrets.net who can help with any queries.