As you prepare your rental property for 2018, one of the biggest things on your list that you’ll need to tackle is next year’s budget. Before you sit down and nail out your projected income and expenses, take some time to review our few tips and tricks on organizing your budgeting process.
Identify & Keep Track of (Relatively) Fixed Expenses
First things first, write down all your fixed expenses for the year. While some expenses might fluctuate slightly, include these into your budget. If you’re uncertain how much an expense will be, but know your rental property will incur it next year, make a few calls. Ask vendors for a quote, or confide in another property manager who’d be willing to share similar information. Some fixed expenses you should include in your budget are:
- Mortgage Payment or Insurance Payments
Money for both of these (although insurance is typically an annual expense) should be set aside within the budget.
- Property Taxes
Property taxes are a guaranteed expense. Taxes can go up each year (although not always), so prepare the budget with this in mind.
- Routine Maintenance
If you do maintenance seasonally – like snow removal, de-icing, gutter cleaning, pool/spa winterizing, etc. – you’ll want to prepare for these expenses ahead of time. If your property is in a flood area or is prone to wildfires, and you see these types of disasters happen on your property annually, you might want to budget for sandbags and additional landscaping.
- Property Management Fees
On the business side of things, you should allot a portion of the budget to management costs. This includes things like the property management fee, the fees for the property management software, administrative costs (like paper, ink, gas, etc.).
Quick Tip: Track your budget more easily with property management software, CICTotal Manager™.
All vendor expenses will need to be added to your budget, this includes any weekly landscaping services if that is not done in-house. Vendors that come annually or bi-annually, like pest control or mold inspections, should also be in your budget.
- Some Utilities (if paid)
Depending on if you provide any utilities, you will need to add that to your budget.
Use Previous Expense Data
If you don’t have fixed numbers on these expenses, utilize your property’s previous profit and loss statements (which you can automatically generate through CICTotal Manager™) to get an estimate of how much to budget for those varying expenses. By using past data, you’ll be able to make a smart estimate for 2018. Just don’t forget to leave yourself some wiggle room.
- Average Vacancy Length
Vacancies can cost serious money – and budgeting for that loss of income can be tricky. Calculate how many leases will be up within 2018. Then, take that number and put it against the retention rate data from the past 5 years. Expect each vacancy to be empty for 1 month, but analyze your previous vacancies to discern if you need to budget more. Don’t forget about the cleaning fees! While vacancy maintenance varies by unit, you should include your average cleaning/maintenance expenses for each vacant unit.
- Capital Expenditures (CapEx)
If you’ve got some major property projects in the works, make sure to leave some room in the budget for them. Whether you’re updating the electrical, redoing the roof, or are repainting carport spaces, you’ll want to provide an estimate within your budget. This number can vary depending on the size of the upgrade, the age & condition of the property, and the vendor you choose to work with.
- Rental Property Repairs
Allotting a portion of the budget for repairs is difficult. Some years the cost of repairs will be low, while some will be high. Base your repairs budget on previous years, and make sure you’re getting quality tenant screening reports to avoid any high liability (and expensive) residents.
While creating your community’s budget for 2018 isn’t the easiest task, it’s vital for creating a successful year. Of course, nothing’s perfect – you might find that you’ll incur more or less expenses than you originally projected – but by using these tips and tricks to organizing your budgeting process, you’ll be in the right direction.
Do you have any tricks to managing your property’s budget?
Check Out These Other Great Articles!