9 Budgeting Reminders for Property Management

Having an effective and efficient year-end budgeting process is critical to any property manager’s success. It facilitates a smooth transition into the new financial year and sets the stage for reaching financial goals.

Here are some key strategies and techniques to help property managers effectively close out the year and plan for the next.

1. Review past performance

Conduct a thorough review of the property’s financial performance over the past year.

• Analyze actual vs. budgeted performance — Compare actual revenues and expenses to budgeted figures. Identify variances and understand their causes and potential impact to future budgets.
• Examine occupancy trends — Review occupancy rates throughout the year, noting any seasonal fluctuations to forecast rental income for the upcoming year.
• Review maintenance and repairs — Assess maintenance requests and unexpected repairs along with their costs. Consider upgrading or replacing systems prone to frequent problems.

2. Adjust for inflation and market trends

Incorporate inflationary adjustments and market shifts into next year’s budget.

• Consider rental market trends — Perform local and regional real estate market research to understand where rents are rising or falling. Adjust rent projections based on vacancy rates, demand, and competition.
• Revise cost assumptions — Account for increasing costs of labor, materials, and services. Request updated pricing from vendors. Renegotiate contracts, where possible.
• Timing of escalations matters — Aligning anticipated budgetary changes in the month they are expected can improve the budget’s accuracy. Consider increasing rental revenue and turn costs as leases roll throughout the year, labor increases when raises are made effective, and general seasonality of certain expenses.

3. Streamline operating expenses

Evaluate ways to reduce operational costs without compromising service quality. Remember the adage, “you get what you pay for.”

• Vendor and contract reviews — Review contracts with service providers. Consider shopping around for better rates. Renegotiate terms on long-term service contracts, where possible.
• Preventive maintenance plans — Establish or review preventive maintenance plans to extend the lifespan of property assets and reduce costly emergency repairs.
• Energy efficiency improvements — Invest in energy-efficient systems to reduce utility costs. Some of these investments could even yield rebates from local or state municipalities.

4. Plan for capital expenditures

Prepare for large, infrequent expenses such as major repairs or system replacements.

• Schedule major repairs — Identify systems or areas in need of upgrades or replacements (i.e., HVAC, roofs, plumbing, electrical). Prioritize critical repairs and defer nonessential projects to align with projected cash flow.
• Establish a capital reserve fund — Whether a separate bank account or on the general ledger, set aside funds for unexpected capital expenses to handle emergencies.

5. Prepare for tax obligations

Assess tax liabilities and maintain compliance with property-related tax obligations.

• Review property tax assessments — Verify accuracy of property tax assessments. Contest assessments if taxes have increased significantly.
• Make use of tax deductions — Work with a professional services firm to help take advantage of available deductions.

6. Review insurance policies

Confirm your insurance coverage is adequate and cost-effective.

• Evaluate current coverage — Review your property insurance policies to confirm they cover potential risks, including liability, natural disasters, and tenant-related incidents. This includes evaluating the structure of your deductible, especially when your policy covers multiple buildings.
• Look for better rates — Shop around for better insurance rates or negotiate with your current insurer for improved terms. Inquire about all risk options including loss sharing, master policies, and insurance captives.

7. Build contingencies into the budget

Prepare for unforeseen expenses by incorporating contingencies into your budget.

• Emergency fund — Set aside a portion of your budget for emergencies such as unexpected repairs or legal disputes.
• Economic downturn planning — Maintain enough liquidity to cover expenses should rental income temporarily decrease (i.e., increase in vacancies or bad debt).

8. Forecast cash flow

Develop a clear picture of expected cash flow for the coming year.

• 12-month rolling forecast — Create a monthly cash flow forecast for the entire year, accounting for rent, operating expenses, capital expenditures, and seasonal fluctuations. Recommend updates, at least quarterly, based on the property’s operations.
• Focus on rent collection — Monitor rent collection processes and address delinquent payments before year-end. Consider incentives for timely payments.

9. Set goals for the new year

Establish realistic financial and operational goals for the upcoming year.

• Occupancy goals — Set occupancy rate targets and develop strategies for tenant retention and attraction.
• Expense reduction targets — Set specific targets for reducing operating expenses or increasing efficiency, such as reducing energy usage or reducing repair costs through preventive maintenance.

How we can help

CLA can help property managers budget effectively by reviewing past performance, planning capital expenditures, streamlining operational costs, and preparing for tax obligations. We offer tailored approaches across finance, tax, operations, and strategy to provide support where you need it most.