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A Guide to Rental Income Forecasting

Understanding rental income is critical to successful real estate investing. Whether you’re a new property owner or a seasoned investor, rental income forecasting can aid in making informed decisions about acquisitions, budgeting, and pricing strategies. In this article, we delve deep into what rental income forecasting entails, its importance, the process, and how to overcome its common challenges.

The Importance of Rental Income Forecasting

Rental income forecasting is an essential part of property management and real estate investing. It is a financial analysis often leveraged by both hosts and real estate investors to predict future revenue from rental properties. Like forecasting the weather, rental income forecasting is not always 100% accurate, but a well-constructed, data-driven, and comprehensible forecast can provide a valuable direction.

The Process of Rental Income Forecasting

The process of rental income forecasting involves several key steps, each as critical as the next. The process includes initial data collection, analysis of local market trends, examination of property-specific factors, and forecasting techniques. Let’s dive into these steps in more detail.

Collecting Initial Data

The first step in creating a simple rental income forecast is data collection. This involves gathering a range of data related to property taxes, costs associated with property management, and potential rental income based on comparable properties. Essential sources for this data could be property management companies, online real estate websites, and local tax authorities.

Analyzing Local Market Trends

Next, it’s vital to take a deep dive into local market trends. How are similar properties performing in terms of vacancy rates and rental income? Are there any notable trends in the real estate market that could impact the profitability of your rental property? These are just some of the questions that need answering. Real estate investors should consult reputable industry reports, local news outlets, and online property databases to gather this information.

Examining Property-Specific Factors

For a practical rental forecast, property-specific factors cannot be ignored. These factors might be location, size, age, amenities, or property condition. A premium property in a prime location can command much higher rents than a similar-sized property in a less desirable area, and it will also impact the vacancy rate.

Rental Income Forecasting Techniques

Lastly, you would apply rental income forecasting techniques using data and insights collected. Different methodologies and software can help do this, including rental property calculator, cash flow analysis, or specialized forecasting tools. Remember not just to look at the gross income, but also to understand the net operating income.

Creating a rental income strategy can be challenging without the right resources. With Hokanson’s property management services, we can help you accurately forecast rental income by crafting a tailored business strategy.

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What to Review for an Accurate Rental Income Forecast

Forecasting rental income is a significant aspect of real estate investment. It requires care, due diligence, and consideration of several factors. Below are some areas to consider for a simple rental income forecast.

Tenant Lease Agreements

Tenant lease agreements serve a role in predicting future revenue. They typically include the monthly rent, lease duration, and terms for any rent increases, providing a foundation for your rental income forecast. So, landlords and real estate investors should pay attention to these details.

Market Rental Rates

The current market rents in your area can impact future rental revenue. Real estate investors who stay informed about trends and changes in market rents stand a better chance of accurately forecasting rental income. Use a rental property calculator or conduct personal research to understand the rent you can realistically charge.

Vacancy Rate Assumptions

Another factor that is often overlooked in rental income forecasting is vacancy rates. Experience and market knowledge help property management in setting realistic vacancy rate expectations. High vacancy rates can significantly impact cash flow, so include this data in your rental property cash flow analysis for accuracy.

Expenses and Operating Costs

Expenses and operating costs are integral to any net cash flow calculations. Considering common costs like property taxes, property management costs, and monthly mortgage payments, alongside less predictable costs such as repairs and maintenance, is crucial for an accurate rental income forecast.

Rent Roll Analysis

A rent roll analysis can help real estate investors understand the potential rental revenue. It aids in assessing the rates, late payments, and lease expiration, which influence future revenue. Keeping precise rent roll records and conducting regular analysis will provide insights on enhancing the net operating income.

Lease Renewals and Negotiations

Lease renewals and negotiations can affect the rental income significantly. They present an opportunity to revise rents, optimize vacancy rates, and negotiate more favorable terms. Forecasting should always take potential lease renewals and negotiations into account.

Side view of a person sitting at a computer and collecting data

Common Challenges in Rental Income Forecasting

Rental income forecasting is not without challenges. Understanding common hurdles and their solutions can help real estate investors improve their forecasting strategies.

Dealing With Market Volatility

Market volatility is a common challenge in rental income forecasting. Reliable forecasts must account for periods of high and low demand, changes in market rents, and property values. Staying informed about market trends, seeking expert opinions, and diversifying investments are ways to mitigate the effects of market volatility.

Incorporating Unexpected Costs

Unexpected costs such as emergency repairs, legal fees, or sudden increases in property taxes can disrupt rental income forecasting. Setting aside funds for unforeseen costs and incorporating them into your gross operating expenses can help maintain positive cash flow and achieve more accurate forecasts.

Adapting to Regulatory Changes

Regulatory changes can affect rental revenue, especially for short-term rental hosts using platforms like Airbnb. These may include changes in property laws, tax cash flow regulations, or city-specific short-term rental policies. Staying updated with recent modifications and consulting with professionals can be immensely helpful in this regard.

Create an Accurate Rental Forecast Strategy With Hokanson Companies

Hokanson Companies is committed to ensuring the success of your real estate investments. We specialize in crafting comprehensive strategies that enable accurate forecasting of rental income. By meticulously analyzing market trends, anticipating tenant turnover, and navigating rent escalations, we empower our clients with the foresight needed to make informed decisions for their rental income.

With Hokanson Companies, you can secure real estate transactions and unlock the tools to optimize rental income, ensuring long-term financial success. Contact our experts today to create the best rental income strategy for your business.

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Christopher M. Horsley

President and Chief Executive Officer
cmh@hokansoninc.com

“Working hard to make a difference to earn your business.”

Chris Horsley joined Hokanson Companies, Inc. in 1997 while completing his degree in Civil Engineering at Purdue University. Chris began his employment at Hokanson Companies in the construction area and in 2000 added Property Management to his responsibilities. Now as President and Chief Executive Officer, he focuses his efforts on construction, development, and property/facility management. Chris oversees a team of property and construction managers to provide management services to approximately 5M square feet in a 7-state geographical service area. Chris also works closely with multiple financial institutions to meet their bank branch real estate needs which includes a 140-branch system across a 3-state geographical area.

Chris graduated from Purdue University in 1999 with a Bachelor of Science in Civil Engineering. He holds a Professional Indiana State License for an Engineer in Training (EIT) and an Indiana Real Estate Broker and is a Certified Commercial Investment Member (CCIM). Chis is also involved with The Building Owners and Managers Association (BOMA) and is currently serving on the International Executive Committee and is the President for BOMA Indianapolis.

Chris enjoys spending time, working in the business, being outside, riding motorcycles, exercising, playing golf, and being with his family.

Stephen J. Adams

Executive Vice President
sja@hokansoninc.com

Stephen J. Adams joined Hokanson Companies, Inc. in 2000 and now serves as the Executive Vice President for the company.  While leading the leasing and brokerage team over the past 25 + years, Stephen has grown his client list by being accountable, trustworthy and responsive at all times.  He manages his client’s corporate real estate needs from coast to coast through providing site selection, transaction advisory, tenant representation and acquisition/disposition services.

Stephen serves as the outsourced real estate partner to many major corporations and has developed long-term relationships by integrating and learning the business of his clients.  His proactive approach to cost savings has provided an invaluable benefit to his customers.  He continues to have success with both large, multinational companies and regional businesses as he earns his client’s business daily with an eye on strategic planning, both locally and nationally.

As Executive Vice President, he helps manage a team of seasoned professionals who provide expert market research, real estate knowledge, and function as a cohesive team to enhance the decision making of his clients.  Capabilities include strategic planning, market evaluation and transaction management.

Continuing the company’s history as the premier medical real estate provider, Stephen has developed relationships with the major hospital systems in Indiana, such as Indiana University Health, Community Health Network, Ascension St. Vincent, Lutheran Health, Parkview Health, Hancock Regional Health and Johnson Memorial Hospital.  In addition, representation services have been provided to many private physician groups such as OPTUM, Otolaryngology Associates, Dawes Fretzin Dermatology, Indiana Spine Group, Midwest Fertility, Northside Gastroenterology, The Surgery Center of Indianapolis, the Suburban Health Organization and the Indiana Hospital Association.

Stephen also counts several publicly traded REITS and Private Equity groups as clients.  Major investment sales experience includes on-campus MOBs at St. Vincent – Indianapolis, Indiana University – Methodist Downtown, Indiana University Health North and West Campuses, Parkview Health, Lutheran Health and various other campuses.  Also, he has completed several national, single-tenant, industrial sale/leaseback transactions including tenants such as Hershey’s, Firestone and several 3PL providers.

Stephen has devoted his time to various organizations including Noble of Indiana, Penrod Arts Society, Youthlinks Indiana, Hoosier Oncology Group, Allisonville Youth Baseball, St. Pius X School, and Cathedral High School the Governors Awards for Tomorrows Leaders.  He is also a member of the Stanley K. Lacy Executive Leadership Series, Class XXXVII.

Jay B. Gehl

Vice Chairman
jbg@hokansoninc.com

Jay Gehl serves as Vice Chairman of Hokanson Companies, Inc.  With over thirty years of experience, Jay has been directing and managing the company’s expertise in the areas of corporate advisory work, strategic planning, tenant representation, financial analysis of leases, brokerage, and build-to-suit assistance.  He has been instrumental in assisting the efforts of several major corporations establishing or relocating their corporate headquarters and managing vast portfolios of leased and owned properties across the United States.  His attention to detail and his unparalleled customer service have been the foundation of his relationships with the institutional customers served by Hokanson Companies, Inc.

Jay has excelled in investment sales with multiple transactions each year that annually rank him as a top producing broker on a local and national level. In addition, Jay’s efforts have helped corporate clients establish or renew leases in facilities across the United States from Connecticut to California.  He has also served the international needs of his clients in six countries including a facility in Turrialba, Costa Rica with 230,000 square feet and 35 acres.

Jay’s resume includes multiple build-to-suits of logistics and manufacturing facilities.  In addition, investment sales such as the 550,000 square foot U.S. Postal Facility in downtown Indianapolis and a 450,000 square foot medical portfolio make Jay a top producer in the local market while managing a team of highly experienced real estate professionals.  The success of Jay’s business is benchmarked by the multiple transactions and ongoing relationships with customers that have remained satisfied by the level of service and the quality of the transactions resulting from his guidance.

Today Jay continues to excel at providing excellent advice and service to several customers that lead their individual industries in quality, growth, and innovation.

Stephen P. Hokanson

Chairman of the Board and Chief Executive Officer, CRE, CPM, RPA
sph@hokansoninc.com

“We put our clients’ interests first… always.”

Steve Hokanson serves as Chairman of the Board and Chief Executive Officer of Hokanson Companies, Inc. He began with HCI in 1971, and has been its President and CEO since 1983. When Steve joined the organization, Hokanson Companies was primarily focused on property management. Under Steve’s leadership, Hokanson Companies has grown to include four active divisions and five separate disciplines.

HCI currently manages over 6 Million square feet under its property management division, and has over $100 million in project management and development. Its sales and leasing division closes over $100 million in sales and leases annually, while they continue to be very active in construction management for its various clients and out-of-ground buildings.

In addition to his role at HCI, Steve has also fulfilled numerous civic and professional leadership roles locally, statewide, and nationally, including the International President of BOMA International 1991-1993. Steve’s other accomplishments include being selected for the Stanley K. Lacy Executive Leadership Series, the Eagle Scout Silver Beaver Award, the National Distinguished Eagle Scout Award, named in Outstanding Young Men in America, and the Sagamore of the Wabash award, which is the highest award given in the State of Indiana by our Governor.

Steve Hokanson graduated from Indiana University in 1969 with a Bachelor of Science in Management and Administration. Steve is a licensed Real Estate Broker in the State of Indiana, and his designations include Counselor of Real Estate (CRE), Certified Property Manager (CPM), and Real Property Administrator (RPA).

Boyd R. Zoccola

Chief Development Officer
brz@hokansoninc.com

“Your ideas become reality through our combined efforts.”

Boyd R. Zoccola serves as Chief Development Officer of Hokanson Companies Inc. With over 25 years of experience, he focuses his expertise on development of office and medical space, and corporate consulting. Boyd has been actively involved in the development of nearly $600 million worth of real estate, including client partners like IU Health, Springleaf Financial, Vectren Corporation, and Old National Bank.

Boyd’s industry involvement with The Building Owners and Managers Association (BOMA) is extensive beginning in 1994. He served as Chair and Chief Elected Officer of BOMA International, and has also served on the Executive, Finance, Medical, and Healthcare Facilities Committees. He also served and chaired numerous task forces along with being a panelist and/or speaker. Boyd’s BOMA Indianapolis experience includes positions as President, Vice President, Treasurer, Secretary, and multiple committee chairs. In addition, Boyd served as a Board Member of the Real Estate Round Table from 2011-2012.

Boyd graduated from Indiana University with a BA in Biology and is a graduate of the Stanley K. Lacy Leadership Series. Boyd has served the community through his involvement with Horizon House, Girls Inc., and the IYHA. He is a member of Second Presbyterian Church, Sigma Chi Alumni Association, Meridian Hills Country Club, and is an Indiana Real Estate Principal Broker.

Tony R. Townsley

Chief Financial Officer, CPA
trt@hokansoninc.com

“A great company has great people who are passionate about what they do! I am proud to be a part of the Hokanson Team, where we demonstrate that passion every day in helping our customers solve their Real Estate challenges.”

Tony Townsley serves as Chief Financial Officer of Hokanson Companies, Inc. Tony began with HCI in 2001, bringing with him 25 years of accounting and operations management experience including four years with Arthur Anderson. This vast knowledge has contributed to his success overseeing the corporate financial reporting, cash management, budget coordination, and year-end audit and tax responsibilities at Hokanson.

Tony graduated from Indiana University in 1985 with a Bachelor of Science degree in Accounting. He is a Certified Public Accountant, and was appointed by the Governor to serve on the Governor’s Council of Impaired and Dangerous Driving. Tony also served on the Wine and Spirit Wholesalers’ Board of Directors. Currently, he’s involved with the Merciful Help Center, and is an active member of Our Lady of Mt. Carmel Catholic Church.

Tony enjoys spending time outdoors with his family, camping, fishing, biking, and reading. Those same family values led him in publishing a children’s book titled “Three Cups”, which teaches children how to save, spend, and be charitable with their money. There are more than 50,000 copies of the book in distribution.