Just like the certainty of death and taxes, property budgeting has evolved into an annual obligation that triggers apprehension and unease for countless management teams across the country. The complexity of overseeing multifamily properties continue to increase, and though the ideal scenario envisions crafting meticulous budgets, vigilantly tracking budget to actuals, and proactively making adjustments throughout the year, the reality often diverges from this fantasy.
In truth, the process of establishing and adhering to property budgets is rife with challenges due to the many life factors that disrupt seamless execution. From staff turnover to shifts in resident migration patterns, and from inflation to property sales, the ripple effects of even the most routine daily activities can wreak havoc on the discipline of budget adherence. This underscores the significance of approaching property budgeting as a marathon rather than a sprint, emphasizing its collaborative nature as a team sport rather than an isolated pursuit. Amidst this busy period, we offer a handful of tips for your consideration in the hopes it will provide some much-needed support, and rest assured – you’ve got this!
Realism isn’t pessimism and optimism isn’t strategy. Setting budgets is similar to goal setting, and anyone who has ever been successful at a diet knows you start with your current state (i.e., “I have ten pounds to lose”), review your history to develop reasonable assumptions (“carbs are my weakness so I need to stay away from the cookie aisle at the market”), and generate an achievable plan for the future “(week 1-3, cookie consumption is limited to weekends”; “week 4-7, cookie consumption is limited to Saturday”; “week 8+, cookies are limited to one day a month”). Consider using the SMART framework – Specific, Measurable, Achievable, Relevant, and Time-bound, to set effective goals for your property budget.¹ Having a framework provides a tested structure to follow, lending some much needed confidence to a daunting process.
Consider using a best, worst and likely-case scenario as a starting point. Write up your budgeting assumptions and run through the list during the year to see if your assumptions are accurate. When something unexpected happens, and your initial assumptions are no longer valid, have the flexibility to adjust your budget accordingly.²
Managing multifamily properties is a team sport; you need to listen to different perspectives, from the owner to the bench. It’s not just a matter of being “fair”; it’s a way to tap into the collective knowledge of teammates and stakeholders.³ They can help you identify opportunities and risks, as well as provide feedback and support. And as challenging as it often is to solicit feedback, the more engagement provided, the more ownership your teammates receive in the outcomes. People who care tend to outperform those who don’t.⁴
Having reserves for emergencies is not being cautious; it’s being agile and prudent. You never know when a new opportunity will arise, and you need to be ready to seize it.⁵ Alternatively you could have an unexpected capital expense that wasn’t in the budget. That’s why you should always have sufficient reserves in your budget.
Most people don’t budget enough for the cost of staff turnover. It’s hard to know what the cost of a staff member’s departure will be, but losing a critical teammate can result in a significant drop in productivity, result in costly recruiting and re-training, and have an immeasurable impact on team momentum. Losing a beloved manager or conscientious maintenance person can impact resident retention numbers, and a solid leasing agent’s departure could increase days on market, conversion ratios, or even cause a drop in rental rates. By assigning the right people to the right tasks, you go a long way towards making the most of their skills and potential, as well as keeping the right people on the team for the long term.⁶
Ideally the budget making process is not layered with bureaucracy.⁷ Having a clear and efficient decision-making process for your team reduces the cost and frustration of a bureaucratic process or feelings of being untrusted and unempowered. Consider giving team members budget approval based upon tenure and proven judgment to help them build their chops.
You can rely on experience and intuition alone when budgeting; but without solid data to back it all up, your decisions may not withstand scrutiny if ever questioned.⁸ Take a look at accurate historical data, as well as reliable projections, based upon analytical tools, if the size and complexity of your organization warrants the exercise.
Apartments are not static objects; they are dynamic communities with changes occurring daily. This means there is a lot to keep track of! Constantly monitoring and adjusting your budget as conditions change is critical for ensuring your year ahead stays on track and has a proper foundation for financial success.To ensure things don’t fall through the cracks, it’s important to consider ways to identify ways to surface issues before they become problems. Technology solutions, like Revolution RE, offer a great way to set your budget targets to alerts that will notify you if things aren’t working to plan.
Incorporating these tips into the budgeting process can help navigate the complexities of multifamily operations and set a clear vision for the future. Taking some extra time now to choose the framework, enroll your key stakeholders, and set up methods to track and stay alerted to deviations, will help you and your team sleep better at night knowing the budget process is under control and you have the tools in place for ensuring a successful year ahead.
References:
¹ Creating SMART Goals for Property Management: A Comprehensive Guide, Oatuu, Carl Carter (June 13, 2023)
² Scenario Planning: A Tool for Navigating Strategic Risks, MIT Sloan Management Review, Paul J.H. Schoemaker (January 15, 1995).
³ Planning effective stakeholder management strategies to do the same thing!, Project Management Institute, Ernest Baker (October 23, 2012).
⁴ The Neuroscience of Trust, Harvard Business Review,
⁵ How to Estimate and Budget for Rental Property Expenses, Bay Property Management Group, Alyssa Adams (May 21, 2021).
⁶ Tips for Budgeting Staff Time and Resource Allocation, The Woodard Report, Carl Coe (November 1, 2021).
⁷ Best Practices to Streamline Budgeting and Forecasting, Finance Digest, Ron Baden (2017).
⁸ Data-Driven Real Estate: How a Strong Data Strategy Enables Informed Decisions and Drives Transactions, Hartman Advisors, The Hartman Team (May 15, 2023).
⁹ An Agile Approach to Budgeting for Uncertain Times, Harvard Business Review, Darrell Rigby, Joost Spits, and Steve Berez (August 27, 2020).
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