Operating Budget for Long Term Rentals

[Luke Grogan]

How many of you keep an operating budget for your rentals?

As crazy as it sounds, I just realized I don’t often consciously budget future expenses. I often do look backs to see what my actual expenses are and keep in mind that I spend 40-45% on taxes, insurance, mortgage payments, and repairs. Generally, I just try not to take more than 40% of revenue as distributions to make sure we are good.

I’ve only got 11 properties, so it’s not like I have operating expenses beyond “standard” OpEx, but I’m working on a loan package to get some cash out with a commercial lender and they asked for a PFS and Operating Budget.

I’m so used to providing rent rolls, cash flow statements, bank statements and tax returns that I found it strange that an OpEx budget and personal financial statement were the first documents requested.

Do you keep an operating expense budget? Do you plan based on actuals or just use target percentages for your reserves etc?