Numbers may not be as hard and fast as they might appear. Not, at least, when it comes to budgeting. “Do your plans always go perfectly?” asks a wry Lucinda Lilley, CPM®, CAPS, GRI. Well, says the vice president of FBS Property Management, AMO®<.sup>, in San Diego, “a budget is nothing more than a plan, there to keep everyone on the same page and going in the right direction.”
That direction can get muddy if essential items are left off the budget, an especially frequent occurrence if someone relatively new to the process is creating the first draft, which is often the case. In fact, Lilley enumerates six items that can be overlooked and send a budget off course.
1. Input from the whole team.
“Budgeting isn’t a singular activity,” says Lilley, who oversees some “700 residential doors,” including single and multifamily housing and condominiums. “If a manager pretends or believes he or she can create a budget without input from every position within their organization, they are probably shortchanging themselves.”
By involving the entire team, from the maintenance staff to the concierge, “you’re creating a complete picture of the various needs of the assets, provided from everyone’s perspective.” Resist the temptation to think you have to go it alone, Lilley warns, also a common occurrence in property management. Besides, “if you involve everyone, then everyone takes ownership of that budget and works really hard to make sure it’s met.”
2. Awareness of pending legislation.
“If you aren’t aware of pending legislation, whether it’s federal, state or local,” she says, “you could be budgeting for something that’s not even close to attainable. Or you could be budgeting way too low.”
One graphic example is a law passed a few years back in California mandating that all balconies had to undergo inspection by a general contractor or architect to ensure their safety. Not budgeting for such expenses can “hit you upside the head,” she says, especially since each balcony inspection can cost roughly $7500. Legislation on such issues as rent control, fire system retrofits, and climate control can easily “shoot your budget to hell.”
3. Anticipating changes in utility rates.
“Utility service providers can change,” says Lilley, and in some markets, there is free competition among providers. Even when not, it’s essential to keep a finger on the pulse of what the local utilities’ rate plans are likely to be.
4. Changing ownership strategies.
Changes in ownership–or changes in their hold strategies–are a common theme in these post-pandemic days. Given the different owner clients represented in a property manager’s portfolio, staying close to their intentions is key.
“Strategies are changing because the market has changed so significantly,” she says. “If I’m managing a property for someone who wants to sell within a year, my budget will be very different from someone who wants to hold long term and create legacy wealth from their investment.”
But isn’t staying close to your ownership clientele Property Management 101? “You would think,” says Lilley. “So, make it a point to sit down at least annually with your owners and ask what their goals are.”
5. Employee turnover, salary adjustments and bonuses.
The market changes just mentioned are being felt in staffing as well as in ownership strategies. In the era of the Great Resignation, “a three-percent raise won’t do much for anyone,” says Lilley. “It’s important when we’re budgeting that we think not just about the numbers, but what employee retention means and what it means to make sure they’re paid well and treated well.” To do so, she says, is to invest in “an appropriate level of service for your residents and owners.”
6. Weather issues.
We mentioned climate as a part of legislative movement, but there is also a more fundamental weather issue that can “impact such issues as roofing and heating and cooling,” says Lilley.
Specifically, predicting weather trends as closely as possible can inform everything from capital expenses to vendor charges. “Will it be an El Niño or a La Niña year?” Lilley asks. Or, what are the hurricane predictions as we approach that season of the year? “We need to look at the weather anomalies and try to predict the trends. They can affect everything.”
But, as we all know, predicting the weather is probably the least exact of all of the conditions that are easy to leave off a budget. Which brings us back to Lilley’s view on the nature of planning. Even without the vagaries of weather predictions “Creating a 100-percent accurate budget is a virtual impossibility,” she says.
But remember it is a plan, a direction. And it is the direction that matters. Quoting Yogi Berra, Lilley concludes that: “If you don’t know where you’re going, you’re going to wind up somewhere else.”