Unless you’re a landlord letting a serious and sizeable property portfolio, it’s quite unlikely you’ll have enlisted an accountant for anything more than the yearly tax return. Almost certainly you won’t have thought about financial forecasts. However, having a good idea of the way your business will look in five or even ten years is essential to your success as a landlord. How can you start to think about the future?
The first thing to map is an idea of how you’ll look in five years if nothing changes; that’s no sales or purchases, no changes to your mortgage and the same tenants. This gives you a rough idea which, though it won’t be especially accurate, can help you to factor in different elements. How about a rise in the interest rate or a void period? It’s worth spending some time making a spreadsheet where you can map these scenarios.
Factoring in Uncertainty
Of course, there’s no way you can guarantee having tenants for all of a period and you certainly can’t bank on being paid. You can, however, make good estimates of these things and they may highlight where your uncertainty lies in real life. If you’re worried about not getting paid by a tenant, why not take out rent guarantee insurance? It solves both the worry of forecasting and of the problem itself!
Using your Predictions
You should use your predictions only as a tool, not as a guarantee. You should be prudent with things like interest rates and, particularly in the current circumstances, assuming the rates will increase at some point is a very good idea. You can also use predictions to help you secure credit from your bank: a good plan visualises a possible lending scheme and can show your bank where they can profit.
Financial forecasting is time consuming but it’s a very worthwhile project. It allows you to see how and where your money could be better spent and it shows up any obvious holes in your current situation.