Financial management

Property management also entails proper financial management, which includes developing an annual budget, maintaining operating and emergency reserves, and maintaining accountability for finances. Asset management includes activities that maintain and enhance a property over its lifetime.

An operating budget is included as part of the pro-forma package and can be used to identify ongoing expenses and assess the risk of operating expense shortfalls. An initial operation budget can be made with a budget estimate that will be adjusted as you determine the revenue generation needed to cover expenses. Once the property is operating, the adjustments to the operating budget will need to be monitored based on the development’s operating expenses and adjusted when necessary.

Rent collection is one of the key resources to fund operating expenses. An analysis of your pro forma can assist in gauging the impact this revenue source will bring. Management must monitor the rent collection rate on a regular basis and the lease agreement should establish guidelines for the rent collection process. Suggested practices for rent collection include:

• Having a flexible grace period prior to charging a late fee can reduce turnover rates and help set realistic expectations with tenants.

• Promoting alternative payment options for tenants, including in-person, mail-in, or drop-off.

• Connect tenants with local housing or financial counseling.

In order to sustain the long-term viability of your development, you should have operating and replacement reserves to cover anticipated and unexpected losses over the course of time. Some funders require minimum operating reserves equal to at least six months of projected annual operating expenses and six months of debt service payments. Replacement reserves are established on a per Unit per Anum basis and should be reflected in your operating pro-forma.