An operating budget for a multi-family property can help you track performance and profits, show you where you could cut costs, help you plan for capital improvements, identify potential problem areas, and give you a good reference point for
future reviews. There's some great software out there that will make it easy for you to create your budget, but here's what you need to know to get started.
Take Stock of Your Income
The first thing to do when creating your budget is to document all your current income sources, as well as projected income. These figures don't just include rent, but also any money you make from things like fees, laundry, utility bills, storage, parking, and other sources of income. Write down all these sources and how much you generate from each. Also make a note of any income projections, such as future rent increases, fees you're going to start charging, and the like. As you create this part of the budget, make sure to note your current vacancies and projected lease renewals as well.
Make a List of All Your Expenses
Now it’s time to document the money required to keep your multifamily real estate operation up and running. Your costs could include things like:
Property management fees and salaries
Repairs and maintenance
Insurance and taxes
Once you’ve got all your expenses listed, you can examine them and look for ways to cut costs. For instance, if you're spending too much on energy bills, there could be steps you can take to increase the energy-efficiency of the building. Or, if you're spending too much on third-party service providers, then perhaps you can approach the competition to see if they have better rates.
Write Planned Improvements into Your Budget
Another critical reason to have a multifamily property budget is so you can plan for capital improvements and make sure you've got the money saved when the time comes. Your improvements could include appliance upgrades, painting, renovations, flooring replacements, repairs, and upgrades you want to make to individual units and the building as a whole.
Plug in the Numbers to See Long-Term Projections
Once you’ve got all this information collected and compiled, you can start looking at the numbers to see your monthly cash flow, your vacancy rate, your income and expense growth, and so much more. Using these numbers, you can also create profit projections, which will help you plan for the future and potentially plan new investments.
Creating an operating budget for your multi-family property is an important part of being a real estate investor, because a budget is a simple and easy way to lay out information and see how you're doing in terms of revenue, expenses, vacancies, and more. Have another investment planned for the near future? Get started with your mortgage application today.