Creating a solid maintenance budget with clear planning and precise calculation can help you effectively manage your Philadelphia rental. The annual budget should account for a variety of costs, such as the income received as rent, expenses involved in maintenance, repairs, renovations, payment of taxes, and more. Here is a step-by-step guide to walk you through the process of developing an annual budget for managing your property in Philadelphia.
Step 1: Calculate Gross Operating Income for Your Philadelphia Rental
Before we begin with this step, there are some common budget-related terms you need to know.
- Gross Potential Income (GPI): The ideal revenue you will earn in the upcoming year, if nothing goes wrong.
- Forecasted Losses: The expected losses you may incur due to vacancies, incentives, etc. This can be calculated based on your previous years’ data or comparable properties.
- Gross Operating Income (GOI): This is the actual revenue you will make, including rental and supplementary sources, once the forecasted losses are subtracted from the Gross Potential Income.
Now, your Gross Operating Income (GOI) is a vital figure that needs to be accounted for while developing your annual budget.
GOI = GPI – Forecasted Losses
This gives you a realistic idea of what your actual income will look like, including rent, and ancillary costs such as, application fees, late payment fees, parking rent/fees, laundry or on-site vending machine revenue for multi-family properties, pet fees, property damage fees, and more.
Step 2: Include Income Projections
In addition to calculating GOI based on previous years’ data, you should also include your projected income in the annual budget. Projected income will include,
- Future rent increases – The increase in revenue if you plan to increase rent in the coming year.
- Potential filled vacancies – The additional revenue if you are expecting a lower number of vacancies or improved average occupancy rate.
- Projected lease renewals – This will include lease renewal fees as well as the projected income from the base rent for the next fiscal year.
- New fees – This is the revenue you may earn from charging any new fees for maintenance, incentives, and so on.
Step 3: Calculate Operating Expenses
Operating expenses are the day-to-day costs of maintaining your property. These include costs associated with taxes, preventative maintenance, condition-based maintenance, insurance, contractor fees, appliances, and others.
Calculating operating expenses gives you an idea of your total projected costs, thereby giving you a baseline for how much your income should be. Improper estimation of the operating costs can result in lesser profits, so it is important to plan these out well. You can consult a professional Philadelphia property manager to figure out these expenses as they are the ones who handle these on a day-to-day basis.
Step 4: Factor in Non-operating Expenses for Your Philadelphia Property
In addition to variable operating expenses, there are certain fixed costs that you will need to calculate for your rental in Philly. This includes property management costs, marketing and advertising costs, loan refinancing, large-scale replacements, renovations and remodels, and unit expansions.
Step 5: Maintain Margins for Unexpected Costs
Legal charges, stamp duty costs, government fees, sudden repairs, or personal emergencies may come up at any time and you should be financially ready to deal with them. Hence, make it a point to keep some margin for unexpected costs.
Step 6: Organize the Information with the Help of Accounting Software
Accounting software can save your time, provide detailed insights, and give you accurate income-expenditure data. Developing an annual budget requires you to factor in several fixed and variable factors, and it may not be feasible to do this on a piece of paper or even on your local computer.
Accounting software helps you organize the information systematically and obtain accurate results with a professional layout and automated processes. We recommend talking to your property manager while choosing your accounting software.
In order to develop an accurate budget, it can be beneficial to consult a trusted and experienced property management company, like TCS Management. TCS Management is a full-service property management company headquartered in Philadelphia, Pennsylvania, also serving Cherry Hill, NJ, Wilmington, Delaware, and the surrounding areas. We focus on single-family and multifamily residential property management of homes, condos, townhomes, and apartment buildings.
Our experts have in-depth experience creating tailored annual budgets based on your investment portfolio. With substantial data on hand, we help you develop multiple versions of your budget to prepare best- and worst-case scenarios for your Philadelphia property.
For more information, contact us at TCS Management.
