An accurate maintenance budget preserves property infrastructure as well as curb appeal and improves the profitability of a real estate operation. This annual forecast requires the participation of several different people, including property managers, maintenance staff and those who own the premises.
Collaboration among these groups will ultimately determine the success of a maintenance budget. Each party must be proactive when addressing issues with the property and avoid deferring key maintenance tasks, which can accumulate over time and force the owners to raise fees or pursue a capital loan.
Starting the process
The construction of a maintenance budget entails the review of historical logs to establish replacement cycles. If property managers notice that a building needs a new exterior paint job every five-to-seven years, for example, they can incorporate the cost into their budget as they approach that specific timeframe.
A physical assessment of the property, however, dictates the maintenance items that must be addressed in the coming year. Property managers might decide to hold off on the paint job if they think the building exterior can weather another year, but the rotting wood they observed in the eaves demands attention.
“If you can identify those problems early by regularly walking the property, you can save a lot of money just by going in and addressing them earlier,” says Chad Moulin, national maintenance trainer and the owner of Prop Ops: Property Operations Training and Consulting.
Major components such as roofing, siding and sidewalks constitute capital improvement projects, which enjoy a longer trajectory than other assets but cost more to overhaul once they deteriorate. A reserve study can help predict when these jobs should be factored into budget plans, although retaining some elasticity provides valuable security nevertheless.
“The money that you allocate for each line item is fungible,” says Tim Arel, a property manager for North Point Management. “Because there are going to be things that pop up that you don’t anticipate, and you want flexibility built into the budget so you can address those items.”
Honing the approach
A system that delineates the priority of each maintenance action helps property managers break down their budget proposals. Moulin would color line items based on their urgency so everyone could understand the bigger picture: Red designated a safety issue or a major concern that had to addressed soon, yellow stood for moderate, and green represented the projects that could be pushed off another year if necessary.
People focused on the expense of a proposed maintenance action, he says, but few of them considered the time required for execution. Drawing on previous experience and comparing the job to similar projects from the past allowed Moulin to quantify certain elements that were not readily apparent otherwise.
“Especially early in my career, I would see that projects would get passed, but nobody thought about the time that was going to go into it, and how that was going to possibly put us behind on other things,” he says.
When bidding a large project or a number of smaller jobs at once, Moulin recommends meeting with all of the contractors at the same time so that any conflicts with timing or pricing can be resolved. “You have everybody right there. Anybody can ask questions and, if anything comes up, we know how we’re going to handle it,” he says.
Understanding how budget items appear to each invested party—maintenance personnel and asset owners, most notably—enables property managers to gauge the circumstances and devise a more practical strategy. Often the situation will call for a compromise from everyone involved in the decision-making process.
“It has to make sense for everybody,” Moulin says. “If it really doesn’t work on one end, the project more often than not doesn’t go as smoothly as it could.”
Consulting the pro
Maintenance personnel typically know a property best because they spend the most time on the premises and can perceive trends. If technicians note that they have replaced more dishwasher pumps this year than they did last year, for example, they can advise property managers to budget for additional replacements next year.
“They’re not only there to address the issue that they’re assigned to, but they’re also there to take a look and see if there are any other issues on the property that we need to address with our clients,” Arel says.
Mobilization continues to be a substantial cost of any maintenance job, so having a crew onsite that can handle multiple work orders offers significant benefits. “If you’re able to bundle a lot of those projects together, you’re going to have cost savings for [the owners] and be able to maintain the property in a much more cost-effective manner,” Arel says.
Some people assume the maintenance staff would prefer to stay out of the budget-making process, but those plans ultimately decide the work they will undertake in the near future. Their involvement helps define the scope of a maintenance job, and can be the difference between undertaking a project and waiting another year.
“We bring our maintenance crews to some of the meetings, so the board can talk to them and they can also share their experience and their knowledge,” Arel says. “You can’t just treat them as an employee; because if you do, you’re never going to get [owners] to buy into the right way of maintaining their property.”
Maintaining the goal
Property managers must also actively include the asset owners in their discussions about the maintenance budget in order to minimize discord and delays. Taking the initiative by presenting them with return-on-investment calculations and other important information throughout the year permits a much smoother budgeting exercise.
“Preparing a budget isn’t just a month-long process,” says Moulin, who would stop every time he encountered a maintenance problem and enter the details into a binder. “It should be an ongoing process—pretty much the whole year. You don’t have to try to cram it all into one month of preparation.”
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