MAINTENANCE, REPAIRS AND RISK MANAGEMENT

 

• A well-managed maintenance and risk management plan increases maintenance efficiency, control cost, extend the life of equipment, ensures the safety of residents and staff satisfaction levels. A property manager must be able to understand.
• Maintenance: keeping something in an existing state.
• Repairs: fixing something that is broken.
• Maintaining property in good condition is the first step towards managing risk associated with real estate management:
• Risk management: process of controlling or reducing risk to acceptable levels. It is protecting the owner’s asset, the property’s residents and guest, and the management company.

 

• Maintenance and risk management go hand-in-hand and are key factors affecting the health, viability, and successful operation of the property.
• As problem solvers, site managers are expected to evaluate situations and anticipate consequences. The best way to solve problems is to know and understand the risk, and then manage them appropriately.

 

• Important aspect of proactive maintenance is the creation of maintenance and risk management plan. A maintenance and risk management plan is a structured plan created to preserve, protect and enhance the property. The plan consists primarily of detailed descriptions of the specific tasks to be performed at the property according to a reasonable schedule. Specific requirements for each property vary depending on its age, condition, size, location, and complexity as well as the number and mix occupants and the frequency of turnover.

BUDGETING FOR CAPITAL EXPENSES

SAMPLE CAPITAL EXPENDITURE BUDGET/ACTUAL REPORT

Building: Silver Creek Property No. 01999  Month/Year: 09/20XX

As of: 9/30/20XX Prepared by: xxxxxxx  Date: 10/04/20XX

Reviewed by: xxxxxxx  Date: 10/08/20XX

 

Acct	Account Description	Current Month				Year-to-Date		Explanation of Variance
No.		Budget	Actual	Var.%	Budget	Actual	Var.%
111-xxx	Parking lot renovation	$3,000	$3,150	-5.00	$15,120	$15,500	-2.5
112-xxx	Walkway repair	2,500	2,150	14.00	13,960	13,100	6.2
113-xxx	Lobby renovation	2,250	2,560	-13.78	10,870	11,000	-1.2
114-xxx	HV/AC upgrade	1,300	1,600	-23.08	5,670	7,100	-25.2
Totals:		$9,050	$$9,460	-4.53	$45,620	$46,700	-2.4

USING IRV FORMULA

 

• The IRV formula (Income ÷ Rate = Value) can be rearranged to calculate any of its elements: Income (NOI), Rate, or Value.

 

VARIANCE REPORT

• Variances can be shown in the monthly cash flow budget; however, a variance report is a narrative report that describes assumptions, amount, and plans for managing variances. It communicates to the owner that the real estate manager is aware of the variances and will take action a needed.
• What is the reason for variance?
• Were the forecasting techniques reliable?
• Is the action necessary to correct the situation?
• What actions can be taken?
• The cash flow statement is a year-end report that recaps the actual inflow and outflow of cash and its related sources and uses. Only items that involve a cash transaction appear on cash flow statement.

 

• The year-end income statement encapsulates the financial transactions for the fiscal period.

 

• An income statement (sometimes called a profit and loss statement) gives a summary of the organization’s economic activity over a period of time, typically a year. It lists income, expenses, and net income (loss). The income statement is prepared after all journal entries have been posted to the general ledger.
• Physical assets used for business, such as building and equipment, age and consequently lose value over time. Depreciation is the expense of using up an asset.
• Interest is included in the income statement for external us. The figure for interest expense represents the amount the property paid in interest on its loans.
• Income capitalization is the market valuation of a property based upon a one year projection of income. In other words, it relies on a single year’s stabilized NOI to estimate the value of property.
• Put simply, the capitalization rate is the NOI divided by the sales price and value of a property expressed as percentage.
• The lower the capitalization rate, the higher the value of the property, and vice versa.

CASH FLOW STATEMENT

 

• The cash flow statement is usually updated monthly and can be included in the report to the owner. Cash flow budgets often include brief description of variances, and for that reason, they are a brief general recap of financial activity.

DELINQUENCY REPORT

• The Delinquency report is a report that tracks late payment of rent; it is updated monthly and included in the report to the owner. Items included in a delinquency report are: resident name, total amount awed, length of delinquency (0-30 days, 31-60 days, etc.), and what is being done to collect the late payment.

VACANCY REPORT

 

• The Vacancy report monitors vacancies; it is updated monthly and included in the report to the owner.

RENT ROLL/COLLECTION REPORT

• The rent roll/collection reports are updated monthly and includes in the report to the owner. Rentals normally are a property’s main source of income, and an up-too-date is crucial.

MONTHLY REPORTS

INCOME STATEMENT

 

• The Income statement is for internal use; it shows income and expenses for a certain time span. Unlike a budget, it shows actual figures. The year-end income statements is discussed later in this chapter.

REPORTING TO THE OWNER

 

• A report is a recap of events. The purpose of a report is to portray past events accurately in an accessible format that communicates information readily to persons inside and outside the organization. Financial repost capture information about the income, expenditures, assets, and liabilities of property. Accurate information is the foundation of decision making, and reports to the owner should be comprehensive and accurate. The month (cash budgets) or the year (annual operating budgets). Comparing several budgets highlights trends at a property. Likewise, rent rolls, delinquency reports, and vacancy reports reflect continuing financial activity and are crucial parts of any report. The accumulation of all this information of all this information through reports adds up to a comprehensive picture of a property’s financial health. Normally, the report to the owner includes a narrative portion with a summary and a discussion of the extent to which the owner’s goals and objectives for the period have been achieved. The narrative should appear as the first page of the report or in a cover letter. The report r=to the owner is usually accompanied by a rent roll that provides details of lease arrangements with all residents to date as well as vacancies. Vacancy reports and delinquency reports clarify the information in the rent roll.
• The following reports must be updated and distributed to ownership periodically as often as monthly.