So you've finally taken the first step into real estate investing. You've made the right choice by investing in a property in Encinitas. The city is a short hop to San Diego and is a "beach bum's dream," with world-famous surfing, an agreeable climate, and postcard views. Even if you don't spend all of your free time at Swami's, there's a lot to love!
Whether you're new to real estate investing or find yourself a bit of an accidental landlord, you probably want to know where to start. Let's spend some time talking about your budget. Chances are, you've been tackling your rental property solo; that's a little intimidating! Fear not. With a few easy steps, you can get a handle on your expenses and your potential income. Once you successfully know how to create an Encinitas rental property budget, you'll land on your feet with a clear direction.
1. Evaluate What You Owe
When considering how to create an Encinitas rental property budget, the first step is to evaluate what you owe on the property.
- How much equity do you have?
- Did you purchase it in cash?
- Do you own it outright, or are you still making payments?
- How long is the term of your mortgage?
These questions are vital because your monthly expenses will vary widely depending on what you owe and how you are paying it off. Fundamentally, this is a question of what amount of your property you genuinely own rather than borrow. When estimating your budget, you commonly separate this from your other expenses. This number is a more abstract representation of the value of your property. You'll need to account for it every month until your property is paid off, but it can fluctuate over time.
2. Gather More Data
Think about your other expenses as a part of your Encinitas rental property budget. Account for all of your monthly operating expenses, including:
- Property taxes
- Insurance
- Maintenance
- Lawn care costs (if any)
- HOA fees.
These costs will tend to be fixed over time, whereas you can ultimately expect to have paid off the mortgage on the property someday.
You mustn't neglect potential costs that may not spring to mind right away. Consider the lifespan of major appliances such as your refrigerator and stove. How old is the water heater, furnace, or air conditioner? If these items are getting up there in age, you may need to replace them.
This type of expense can be unexpected and relatively major. If you are renting a single-family home with no HOA, you may be on the hook for replacing the roof or siding in the event of weather damage or age. Build these concerns into your plan. Schedule a future replacement date and incorporate those future costs into your budget.
3. Run a Rental Analysis
This type of analysis allows you to determine the best rental rate for your property. A rental analysis is an involved process that compares your property to other properties of the same type within a short distance. Setting the right rent is critical to your success as an investor. This tool allows you to do it. So how do you perform a rental analysis? It's fairly straightforward:
- Start with estimating your rental income.
- Examine your neighborhood and identify everything that has the potential to nudge your income up or down.
- Assess the location of your property. Location can have an outsized impact on what your property can earn. It's not as simple as looking at square footage and property type across a large geographical area.
- Find nearby properties of the same type with similar features and square footage Determine what they are earning every month. Controlling for your location, it's a safe bet that your property will bring in a similar level of income!
4. Create an Initial Budget
When you have a grasp of your expenses and your potential income, it's time to create your initial Encinitas rental property budget. This process is deceptively simple to do.
- First, take the income that you've determined from your rental analysis.
- Track and categorize your spending. Your spending is one area that you can control a little more readily than your income.
- Consider your mortgage and any monthly expenses that you owe on the property.
- Include additional recurring or one-time business expenses such as the cost of tenant screening or pursuing eviction actions.
Next, set your business goals. These can be as simple as maintaining a single property and earning a little extra on the side or as complicated as investing in multiple properties on a specific timeline. Having a clear vision of your goals will help you to make a firm plan on how to achieve them. It can be helpful at this point to take your budget to a certified public accountant, or CPA. They can help you iron out the details and account for anything that you may have missed.
5. Hire an Encinitas Property Management Company
If these tips on how to create an Encinitas rental property budget have your head spinning, don't despair. Raintree Property Management offers many services that can help you maximize what you're earning—or want to earn—with your property.
Rental price analysis, accounting, financial reporting, and many other services are all available at different pricing plans. All you need to do is sit back and collect passive income from your investment property. Does this sound like the life for you? Reach out to Raintree Property Management by phone or online! We're here to make your life (and investment) easier.
