Budget Season is a hectic time for everybody. Board members need to prioritize budget season, as it allows property managers to track their spending and income, and make sure that they are operating within their means. Having a budget also allows property managers to set aside money for emergency repairs or unexpected expenses, and can help them to make more informed decisions about how to allocate their resources.
Property management budgeting is the process of breaking down a property’s income and expenditures by creating a property management budget.
The property management budget is used to monitor the property’s finances and plan future spending. Typically, property managers prepare their building’s annual operating budget months before the upcoming fiscal year. This ensures that all income and expenses are accounted well in advance.
The main source of income from communities is through dues and association fees. The rent is collected usually on a monthly basis and is generally the main source of income for most property owners.
The expenses for a property can vary drastically depending on the type of community. For example, an HOA will have significantly different expenses compared to a high-rise condo.
The property management budget should consider the following expenses:
Traditional budgeting is a method of budgeting that uses the previous year’s budget as a reference point for the next year’s budget.
Zero based budgeting is a method of budgeting that uses zero as the starting point of the budget and projects the budget of the property based on estimated data. Each item within the budget is analyzed and considered through decision-making by the board of directors.
Streamlining processes can be a major factor when managing communities.
Regardless of the type of budgeting method you use, you will have to calculate the net operating income (NOI) of the property.
Net operating income = Gross Operating Income - Operating Expenses
Gross operating income refers to the measure of a property’s total income pre-tax.
Operating expenses refer to the costs required to maintain the operations of property.
Once you’ve calculated the NOI of the property, evaluate any future investments the building may consider for the future. For example, if you’re thinking of adding new furniture to the lobby or adding more security cameras- the budget should include these items as well.
Finally, create many drafts of the budget to ensure every scenario is satisfied. There can be many unforeseen expenses and situations that can affect the budget- so perform your due diligence and create multiple versions of the annual budget that assume different factors.