Three Keys to a Successful Property Budget Review

A budget is your vision of an asset and a forecast of potential earnings. While creating a portfolio or property budget, our deniable need to put everything under the microscope to review and analyze blurs the view. As we try to ensure that values tick and tie, we can miss the big picture. So where do we go wrong in the process? The answer can often be found in the budget review process. Successful multifamily budgeting involves more than just plugging in numbers that look right. In the battle of the budget review process, there are three main culprits for bad analysis: Failing to define and set goals for the asset. How can you review a target that is not clearly defined? Not accurately projecting end-of-year numbers. Inaccurate forecasting for the end of the year will hinder growth measurement for the next year. An explorer must always know where he is before deciding on the right path. Ignoring the details. Reading between the lines is essential when reviewing budgets. First: Define the property or portfolio goal Not properly defining an asset’s goals can impact the review process. Simply stating a desire to grow income by 5 percent and hold expenses is not goal-setting. Sure, they are measurable numbers, but how are you going to get there? If you drive from New York to California without accurately mapping a plan, you can bet your travel expenses will be more and the trip will take longer. Let’s face it, an internet map doesn’t always take the most direct routes. Do a little homework and make the right plan. By not knowing the what, how, and how much it’s going to take to get that five percent income growth and having a direct plan for maintaining expenses, you are just looking at numbers in the review process. Dig deeper. You may want to keep your budgeted expense the same, but the likelihood that your vendors feel the same way is doubtful. They just might be planning to raise rates because of increased materials cost, labor,...