Proper planning can save investors from many headaches. One of the most common blunders when staring an investment project is inadequate room in the budget and timelines. In todays article, we'll discuss budgeting time and money for successful real estate investing.
It’s easy to start planning in your head. You go through the steps it'll take to get from here to owning an investment property that’ll put cash in your pocket every month. It’s easy to make that mental jump from searching for a property to finding dream tenants that will move in and start paying you on day one. Your brain naturally wants to jump to that final goal of making money. It races through the steps between here and there. Reality tends to be a longer process.
You have to be realistic when it comes to budgeting time and money. In fact, it’s better to be on the safe side and bank for things taking longer and more money. It’s better to finish ahead of schedule with money left over than the alternative.
Setting aside enough time and money for a new investment property can be the difference between a relatively low stress start to positive cash flow and a nightmare that eats into your profits.
Money. It’s the real reason people get into investing, whether in real estate or something else. The “why” behind the money may be different for everyone. Some are looking to have freedom for a career change, others are looking to be able to do more for their family. But at the end of the day, whether short-term or long-term, the end goal is to have more money than originally invested. Yet, it takes at least one initial investment to get started. The problems start when investors don’t properly budget beforehand. Remember, you’re budgeting time and money for successful real estate investing, people who do the bare minimum rarely succeed.
For investors, cash flow numbers need to make sense. One of the factors of a good investment property is whether or not it can bring in more money than it costs to own.
So, when investors don’t budget properly before they buy a property, those numbers can quickly swing to the negative.
Here are some of the areas investors commonly under budget.
It’s rare to hear someone say that they came in under budget in a home renovation. That’s partly because people don’t budget enough for their renos, but also because these are the cautionary tales that get shared. It seems like every episode of any reno show that’s ever aired on television finds an unexpected problem that the homeowners didn’t budget for, keeping them from finishing the job as planned.
Many renovations go according to plan, but that doesn’t mean you shouldn’t be prepared for the unknowns.
Basements/foundations, attic, plumbing, and electoral work are common spots where unplanned problems pop up, which take more time and money than planned. This may be more common in older homes, but newer homes aren’t immune to hidden renovation costs.
We see this too often. Investors spend $450,000 on a house, but then drag their legs to pay for signs and online marketing to get the right tenant into their property.
We’ve seen investors post homes for rent on free classified sites like Kijiji or Craigslist, and they won’t even pay the $20 or so dollars to boost their ad. Instead, it falls lower and lower and it doesn’t take long before it’s irrelevant.
Physical signs are another expense not to ignore. Paying for a couple of directional signs and a good quality sign to post in front of your property will let people know the home is for rent and how they can get more information. The directional signs are great if your house isn’t on a main street. We’ve worked with many investors who’ve had great success with people coming out to their properties because they’ve seen the signs outside and in the neighbourhood.
Your marketing strategy will play a big part in budgeting time and money for successful real estate investing. You can read more about marketing your investment property here.
Surprise, it costs money to maintain a property. Good investors normally set money aside each month from rental income to build a reserve for maintenance costs that come up, but initially, you need to have money set aside for those costs.
You can fairly easily plan for regular maintenance and upkeep. What people forget are those little unknowns that pop up at the most inconvenient times. Some of these may pop up early on when your tenants first move into the property and actually start living in and using the house. Some things won’t pop up on a home inspection, but tenants will notice once they’re regularly using the home’s plumbing, electrical, appliances, etc. Plan for at least a couple early on calls from your tenants about things that need to be fixed.
Time is another factor investors under budget that can end up costing them.
Here are the big areas to budget your time…
Finding a nice house in a nice area that makes financial sense as an investment property can take time. The amount of time can vary greatly depending on the market. When inventory is high, you may find a great place on your first trip out looking at properties. If the inventory is low, it may take months to find the right house for your investment.
Just like having room in the budget for renovations, you need to leave yourself enough time to get the job done.
This can greatly vary depending on the job. If you need permits and inspections, you will need to budget more time because you can’t guarantee when things will get signed off, especially when you’re waiting for the municipality.
Each month the house sits empty it costs you money. So, if a renovation takes longer than expected, it can prevent you from getting a tenant in to cover those monthly expenses. By being realistic and leaving time for unknowns, you can properly budget for the time your property is vacant.
It is very possible to have a house filled with a good tenant the same day you take possession. We’ve seen many investors do it time and time again, but while doable, it’s not the norm, and you definitely shouldn’t count on it.
This is an area where you need to budget money and time. It could take a month or two to get the right tenant into your unit. Part of this depends on the rental market your property is in. Part of it is the desirability of your actual property, and an even larger part has to do with how successfully you marketed the house.
With a good marketing strategy, you can get your house filled, but the whole process can take some time. Be prepared to cover the costs of the home while it sits vacant. If you budget for it in advance, you’ll be a lot less stressed if you don’t find the right tenant right away.
Life can be difficult to plan, things happen, so plan for the unexpected. Don’t think of the extra money and time as a loss. You’re budgeting time and money for successful real estate investing. At the end of the day, if you’ve left yourself more than enough time and money, you’re going to have a much more pleasant start as an investor.