Budgeting Income and Expenses For Your Rental Property
October 23, 2017

Budgeting Income and Expenses For Your Rental Property

While every property owner will agree that budgeting is essential to proper management since the ability to maintain and improve the property rests with the budgeting process, most small property owners fail to prepare budgets adequately. A budget is a forecast of future income and expenses. As such, it is an absolutely essential management tool. Unless you take the time necessary to analyze past income and expenses and forecast future income and expenses, you just won’t know whether or not you’ll have adequate cash flow for the ongoing expenses necessary to operate and maintain your property.

Income is the starting point on any budget. You need to determine what is an acceptable rent level for each apartment in your building. This determination is crucial. If you raise the rent too high, you may force many of your tenants to move. On the other hand, if you don’t raise the rent or raise it too little, you may find that you have insufficient income to properly manage and maintain the property. Rent increases should be based in large part on comparison with the market.

If your building is the best in the neighbor- hood and a building down the block, that is not as well maintained or as spacious as yours, is enjoying high occupancy and getting higher rents, then you are below the market and should raise your rent. A comparable study should review the rents at a minimum of eight other properties that are within your area. Since all one-bedroom apartments are not alike, you will need to identify the factors that increase or decrease the value of your competitors’ unit as compared to yours. Among the factors to review are:

  • Is the building attractive from the exterior?
  • Are the corridors well maintained?
  • What is the square footage (bigger is better)?
  • What appliances are provided (review which appliance are provided and their age)
  • Are there on-site laundry facilities?
  • What amenities are provided (Cable TV, Exercise Room, Tenant Storage, Parking)?
  • Is the building within close proximity to shopping, transportation & schools?
  • Is there a gym or swimming pool?

Budgets are not difficult to prepare and with proper ongoing planning throughout the year, you should be able to collect the information needed to prepare a reasonably accurate budget. That information should contain those ongoing expenses that will occur year after year, such as utility expenses, real estate taxes, mortgage payment, scavenger service, janitorial service, licenses and permits.

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