Property manager budget responsibilities vary significantly across sectors, management agreements and by owner expectations. Many managers focus only on operating expenses. Those who fail to engage more deeply in the property’s budgeting process miss an opportunity to demonstrate their value to the owner and other stakeholders.
“A good site manager can control expenses, but a great manager creates more income,” said Sal Dragone, CPM, CCIM, director of property management at Rubenstein Partners in Philadelphia, during a webinar hosted by the Institute of Real Estate Management on budgeting fundamentals for property managers.
Leverage the budget management process to deliver more value to your clients, but first, make sure you understand the owner’s goals. “Different owners have different objectives,” Dragone says. “If you’re not in direct contact with the owner, talk to the owner’s representative to understand the bigger picture.”
With the owner’s goals front of mind, take a deep dive into the budget to identify opportunities to generate income and reduce operating expenses.
Generate New Income
Beyond rent collection and expense management, opportunities to generate additional income will depend on the property’s size, location and asset type. Review budget line-item details for services and amenities. “If the property offers amenities that tenants don’t pay for, consider adding an amenity fee,” suggests Dragone.
Residential rental properties present numerous opportunities for amenity and service fees, including pet services, storage lockers, laundry pickup and delivery, EV charging stations and reserved parking spots. Dragone’s company offers maintenance services to residential tenants. “Offering to hang pictures for $25 an hour is a great service and easy source of revenue,” he says.
Commercial property opportunities include conference room rentals, shredding services, after-hours HVAC use and reserve parking fees. Review tenant leases to ensure there is no conflict.
Explore third-party revenue sources such as rooftop solar panels and beehives, cell tower leases and public space digital advertising. Examples of vendor partnerships that provide tenant value and generate income include vending machines, package delivery lockers, dog walking and mobile car wash services. While not every service is a good fit, thinking outside the box with fee-generating amenities for managed properties can increase net operating income (NOI).
Reduce Operating Expenses
A thorough review of a building operating budget can also reveal opportunities to reduce expenses. Focus on areas of uncertainty and volatility, such as utilities. “While you can’t control the supply side, examine what’s happening at the property,” Dragone says.
Explore sustainability initiatives to reduce consumption or generate revenue, such as energy demand-response programs or utility incentive programs (e.g., rebates for smart thermostats, LED conversions, occupancy sensors, low-flow fixtures, etc.). “Capital investments improve the value of the building, so it’s all net good in the end,” Dragone notes.
Take a Hybrid Approach to Budgeting
Zero-based budgeting (starting every line item at $0, regardless of prior expenditures) is a great way to identify income-generation and expense-reduction opportunities. “Zero-based budgeting forces property managers to understand the ‘why’ behind every dollar spent,” says Dragone, “but it’s time-intensive and may be overkill.”
Dragone recommends a hybrid approach. “Use historical budgeting (adjusting last year’s numbers based on known changes) for fixed costs such as taxes and debt, and zero-based budgeting where there’s been a spike in costs,” he says. It can also flag outdated subscription auto-pay services, routine service contracts that can be adjusted (think mowing frequency) and long-term contracts due for a re-bid.
“Involve your team,” Dragone says. “Talk to your engineers, maintenance people and leasing agents. Ask about expenditures and invite input on ways to save.”
A Little Saving Can Have a Big Impact
It only takes a little saving to make a big impact that proves your value. Dragone offers the example of increasing the NOI by $10,000 through income generation and expense management. “If your budget was $500,000 and you spent $490,000, you can take that 10% and apply a cap rate of 5%; you’ve effectively added $200,000 to the property’s value,” he says. “Let that sink in.”
