Real Estate Budgeting
When flipping houses or just real estate investment, developing a budget is key to your success as an investor. Budgeting helps you understand the amount of money that will come in each month as well as out. Budgeting allows you to prepare for how much to set aside for unexpected repairs, general maintenance, and moving costs. While developing a budget for your real estate investments may seem trivial, it’s an important step that should not be overlooked.
To ensure you’re budgeting correctly, Silvercreek has outlined some considerations to make when developing a budget for your investment properties.
How to Develop a Budget
When creating a budget, we recommend using a computer program like Microsoft Excel or some other type of spreadsheet. Spreadsheets let you make quick adjustments to your budget and make it easy to make corrections when need.
Budgeting on the computer also allows you to make graphs and charts of your income and expenses over time, which gives you an excellent visual representation of where your money is being allocated. Spreadsheets make it easy to track any variances in your budget, like actual cost vs. projected cost.
Once you have the basic structure of your budget, you’ll want to review it to make sure you’re not missing any expenses. With a transparent budget, you’ll have a better idea of the returns to expect from your investments. Since your potential gains aren’t as simple as dividing the rental income by the price, properties that have lower rental incomes might be more profitable than higher renting properties with a lot of extra expenses. No two properties are alike, so it’s important to consider a variety of scenarios before investing.
What to Budget for
A budget is only as good as the items it accounts for, so it’s important to know some of the general costs associated with real estate investing. Some common items that you’ll need to budget for with almost every type real estate investment are listed below.
· Debt Service (mortgage)
· Property Taxes
· HOA Assessments
· Rehab costs
· Marketing Expenses
The above list is not exhaustive, and the actual expenses associated with your investment can vary significantly, depending on actual circumstances. As a general rule of thumb, you should add in a 10-15 percent cushion on top of all the expenses you plan to incur. This will ensure you have enough money to meet unexpected costs; it’s much easier to come under budget than to go over.
TIP: Don’t Skimp On Maintenance Costs
While it may be tempting to try to save a couple of bucks per month by handling the maintenance on your properties yourself, you need to keep in mind that you’ll basically be on-call 24/7. Not to mention, you need to know what you’re doing in the event something needs to be repaired. And since you don’t work for free, you’ll nonetheless need to budget a reasonable wage you’d expect for your time in performing these tasks. This is one aspect of real estate investing where a property manager can add value.
An Experienced Sacramento Property Management Company Can Help Your Budget
To make your life a lot easier, a property manager can be hired to look after your properties. A Sacramento property management company, like Silvercreek, charges a monthly fee to look after and maintain your investment property. Hiring a property manager allows you to lump a number of your monthly expenses together into one cost. Some property managers include necessary maintenance and repairs with their fee, which means no more worrying about minor maintenance. While this won’t completely protect you from unexpected significant repairs, like a busted water line, a property manager can still save you time and money in these situations by helping you select the right contractor to do the work.
Property managers’ duties don’t just stop at performing maintenance and repairs. A good property manager can also handle all the finances for your properties, market your units, screen potential tenants, help keep good tenants in, and oversee all the move-in/move-out activities. Think of your property manager as part of your overall investment plan; good ones are worth their weight in gold.
If you’re looking to hire a property management company, Silvercreek Association Management has experience managing properties in the Sacramento area. Silvercreek offers the kind of individualized attention you simply cannot get from some of the larger property management companies.