4 Areas to Focus on to Better Understand Financial Budget Variances

Being able to manage the leasing, residents and staff are critical functions of a good property manager, but often I hear from regional managers and other leaders in the multifamily housing industry that managers are good at running properties, but don’t fully understand how to read a financial statement. Understanding financial budget variances in property management Usually, the reason is that no one has invested the time to teach them to read the numbers and to better understand how their impact on the bottom line. Have you ever heard a manager say, “the property is sitting at 97 percent occupancy, but I don’t understand why we are not making our budget?” Understanding financial variances to the budget will improve a property manager’s ability to reduce waste, seize opportunities to increase income, and forecast in changing environments. Here are four areas to focus on: 1. Income Understanding how income impacts cash flow is critical. The property owner with the most heads on beds is not always the financial winner. If new leases or renewals are not signed at an optimal lease rate, that loss in rental value is felt for a year or sometimes even longer. One common misconception managers believe is that if they are full, they are doing great.  Lesson one is to learn the difference between physical and economic occupancy. Buying occupancy with concessions, lower rental rates, and maintaining the lower rates at renewal drive the value of an asset down. While it may be an easier lease at a discount, higher concessions or poor lease management frequently can have an adverse impact on the financial health of the property. It is important to be proactive in understanding leasing and renewal trends to anticipate opportunities to raise rents. Ancillary income can boost monthly cash flow and help increase a property’s financial returns. Review all the current “other income” opportunities to ensure that this revenue...