All real estate investors need to make sure they are on top of these budgeting basics.
- Renter Deposits
It doesn’t matter whether you are flipping houses or holding rentals. You need to stay on top of tenant deposits. Sooner or later you’ll need to return them or forward them to the next buyer. They shouldn’t be spent or mingled with other money. You want to make sure you get them when you close on a new deal or lease, and have them available all the time. Failing to do so can cause big legal headaches.
- Budgeting for New Technology
New technology is being rolled out faster than ever before, and it just keeps accelerating. As a real estate investor you really need to be on top of this. It is important for marketing, attracting investors, retaining tenants, and staying competitive. Plus, being an early adopter can bring big opportunities for standing out. This can apply to everything from being ready to dominate new social media platforms to new phones and desktop screens, to property management software and smart home devices.
- A Cushion for Overages
Whether it is rehabbing a new acquisition, cleaning up for tenant turnover, closing costs on a new acquisition, or building from the ground up; it’s going to cost more than you planned. Make sure you account for that and have the extra credit or cash to cover it. Coming up short could wreck your entire portfolio.
- Saving Receipts
Many new investors really sabotage themselves by failing to keep up with basics like expense receipts for filing taxes. Tax savings are one of the best benefits of investing in real estate. Don’t throw that away with such a simple mistake. If you can’t account for those expenses you can’t write them off and save on the taxes. Ideally, you’ll have a bookkeeper who stays on top of every dollar monthly. Barring that, be sure to keep all your receipts and statements.
- Paying Vendors
It’s not always easy as a new investor, but you really need to get in the habit of paying vendors on time. This industry makes it very tempting to drag out paying the bills as long as possible. Some get in the habit of consistently paying 30, 60, or 90 days late. You may get away with it, but it can have some downsides. If you don’t really have the money this can hit hard when things get tight for a month. You can lose the best vendors in your market, and give those advantages to your competition. Think about how you work. You will probably prioritize and do better work for those who you know are going to pay the best, and on time. The same goes for everyone else from contractors to appraisers, home inspectors, title companies, and more.
- Paying Staff
While you may love the ideal of everyone being on your team to accomplish your mission, others aren’t really there to make your dreams a reality. They are typically there for the paycheck. They can do the same work for you, or someone else, and have pretty much the same level of satisfaction. If one of you pays on time, and the other is constantly late, which one do you think they’ll work for?
While you may be solid when it comes to paying others on time, not everyone else will do the same. And everyone seems to go through cash crunches at the same time. It hits that time of the month or year, and all your tenants or those supposed to be paying you stall out, all at the same time. You’ve got to be able to cover those gaps, or everything can fall apart. Build up a good cash float, or secure a bank line of credit specifically for this. Emergencies are more common than you think too. That could be busted pipes in the winter, blown out AC units in the summer, or hurricane damage taking a swipe at half your portfolio in Florida. When this happens tenants can halt payments, and insurance companies can’t be relied on to pay up on time, or enough. Again, build up separate emergency reserves and keep them just for that.