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How to Control Your 2015 Property Management Budget

A property management budget serves as a guide for maintaining a building’s well-being. But when not controlled properly, your budget can be the source of significant financial loss.

In fact, the two reasons a building owner typically leaves a property manager are both related to finances. “One is a lack of communication about budgets,” says Andrew Propst, president of Park Place Property Management in Boise, Idaho, and the National Association of Residential Property Managers. “[The other] is unexpected maintenance charges. Those are the 80/20 — 20 percent of activity that causes 80 percent of owners to leave.”

With these tips, you can learn how to avoid budgetary disasters and effectively control your property management budget:

Prioritize Communication

Unplanned repairs are bound to arise because some accidents are unavoidable. But with effective communication, property managers can ensure building owners are aware of all major costs required to complete a repair.

“We have a dollar amount that we specify, so for any repair that’s over $500, we’re going to get a written estimate and budget,” Propst says. “For any normal faucet or light fixture that needs to be fixed, we don’t typically need to run those by the owner. Those are a part of the contract deal up to a certain amount. But with the bigger repairs, that’s when we provide an inspection, invoice, pictures and videos.”

Additionally, instead of sending a bill to the building owner after completing a job that exceeds the repair budget, maintaining open lines of communication during the entire process can reduce the risk of a misunderstanding.

“Unexpected expenses can be avoided with clear communication to the owner,” Propst says. “We explain that when we did X, Y or Z, we found more issues, so we’re going to have to charge a little bit more. That’s way easier than sending a bill after the fact and saying, ‘Sorry, we went $5,000 over budget on this repair.’”

Avoid Misunderstandings with Written Documentation

Moving forward with a verbal agreement, as opposed to obtaining a formal signature, can end in major financial setbacks. “We’ve had owners that have approved maintenance work over the phone, then get the bill and say they never approved it,” Propst says. “They say they’re not paying, and you might have put $10,000 into the building. That’s a huge loss.”

While many property managers understand the gravity of written agreements, the challenge is establishing a system to ensure it happens for each and every job. Luckily, the solution can be as simple as an app.

“We use an inspection application, Property Pal, which asks all the questions that allow you to write up a quality bid,” Propst says. “Then we take that bid, along with photos of the inspection or even videos of repairs needed, and create an invoice with the materials and amount of labor required. We send that to the owner to use an electronic signature to sign off.” 

Remedying the issue of documentation with owners is just the first step in the process. Property managers should also obtain formal agreements from maintenance workers, says Michele Trina, director of suburban management at Lieberman Management Services Inc. in Chicago.

“It’s important the property management team has regular meetings with the maintenance staff to ensure they convey the information, obtain written documentation and ensure that they are following their maintenance inspection checklists,” she says.

Expect Emergency Repairs

While property managers cannot always predict last-minute repairs, a proactive approach to emergencies when establishing a budget can help cover unforeseen repair expenses.

“They happen all the time, especially in cold weather with pipes freezing, so you want to have a good clause in your contract with that owner that says, upon emergencies, you will do everything you can to preserve and prolong the life of the property,” Propst says.

Study Building History and Track Patterns

Each building has a unique history, so considering the background rather than increasing the budget by a fixed percentage each year makes for more effective planning.

“You always want to review the history and see if there are any trends happening,” Trina says. “If you’re noticing the pipes are bursting in water heater closets, you might want to incorporate that into the budget. You’d say, ‘We’ve had 40 of these go, and not only have we had to pay for the replacement of the heater, but we’ve had to do $200,000 in remediation because of all the damage. It might be better off to just spend the $40,000 now to replace all the heaters because it’s going to save you on the remediation in the long run.”

As property managers keep tabs on a building’s history, it is also vital to consider age. “As properties get older and older, make sure you continue to increase those budgets,” Propst says.

Research Current Material and Labor Costs

Once property managers establish repairs that need to be completed, exploring as many material and labor prices as possible can make for better estimates.

“Make sure you utilize all your resources to get good pricing and explore the costs that are really involved,” Trina says. “Rely on industry experts for specific cases, whether it’s electrical or hardware.”

Referencing past inventories can also help property managers compile more accurate budgets. “We track our inventory and buy in bulk so that we can get a better price, but we budget accordingly based on previous usage of those items,” Propst says.

Conduct Regular Inspections

When preparing annual budgets, referencing findings from inspections can help property managers better anticipate financial needs.

“It’s important to do regular inspections to help plan for the long term,” Trina says. “We do weekly property inspections — we phase it out so, for example, we check all the backs of the buildings one week, then all the hallways the next week for wear and tear.”

Reaching out to industry experts to participate in these inspections can also help property managers estimate budgets more accurately.

“When you do these inspections, you should also utilize your reserve study, where professional architects and engineers come out and give the useful life left for that component of your property,” Trina says. “If they say all the mailboxes are due to be replaced in 2018 and it’s going to cost you $50,000, come 2016 the property manager will start looking at those, give a guideline of how much it’s going to cost and start incorporating that into the budget.”


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