ARM (IREM): Summit Park: Reforecasting Mid-Year and Funding a Roof

First, build the variance correctly, because the wrong frame produces the wrong answer.

Reported unfavorable variances: revenue $63,400, make-ready $22,000, insurance $6,500. Favorable: payroll $11,000.

Watch for double counting. Bad debt of $9,800 is usually a component of the rental revenue shortfall, not an additional variance. Confirm against the general ledger before adding them. If bad debt is separate on this property's statement of income, the total unfavorable is about $81,000-$88,000; if it is embedded, it is closer to $75,000.

Then separate what can still be changed from what cannot. This is the part owners get wrong: an incurred overrun cannot be recovered, only contained.

• Insurance (+$6,500): not controllable, not recoverable. Re-bid at renewal only.
• Make-ready (+$22,000): already spent. What is addressable is the remaining run rate - set scopes of work, bid turn costs, and require approval above a threshold.
• Payroll (−$11,000): this is a vacancy, not a saving. The position being empty since March is likely part of why turns are slow and make-ready is over. Backfilling may reduce net cost.
• Bad debt and delinquency (6.4% and rising): the most controllable item. Contact all 11 accounts within 5 business days, put the four 60+ accounts ($18,600) on written payment plans or refer them out, and stop accepting partial payments without an agreement.

Reforecast honestly. Present the owner with a full-year NOI around $70,000-$75,000 under budget, split into one-time and recurring causes, and state that the gap will not close through operations alone. Then present where cash will actually come from.

No - and the reserve math shows why the answer is close but not comfortable.

Operating account: the property is already reforecast to finish roughly $70,000 under budget on NOI. It does not have $180,000, and a roof is a capital replacement, not an operating expense. Charging it to operations would misstate NOI, distort the property's valuation for the next buyer or lender, and likely violate the reserve provisions of the management agreement. The answer to the owner is: not from operations.

Reserve math if the reserve is used in full:

• Balance now: $340,000
• Less roof: ($180,000) → $160,000
• Plus deposits over 14 months: $25,000 × 14/12 ≈ $29,200 → $189,200
• Paving need in 14 months: $190,000

That leaves a shortfall, a zero cushion for the rest of the reserve study, no allowance for bidding overruns or inflation, and no contingency for a water heater or boiler failure.

Recommendation: fund the roof from a split, not a single source.

1. Commit roughly $120,000 from reserves now, preserving about $220,000 today.
2. Arrange a $60,000 capital line or owner capital contribution, repaid from the next two years of reserve deposits.
3. Get three bids and a fixed price by February; require a manufacturer's warranty.
4. If the reserve cannot be restored above the paving number by month 12, put the shortfall to the owner in writing as a funding decision he owns, not one the property absorbs.

The goal is a written plan for every account, not a round of phone calls.

Depends on whether the debts are small or large. Amounts here average $4,650, which is large enough that inaction is a decision to write off.

Sequence

1. Verify the balances. Charges, late fees, and any partial payments applied correctly. A balance you cannot explain in a ledger, you cannot collect on.
2. Written demand to each account, within 5 business days, with the balance, the deadline, and the consequence. Verbal contact only does not preserve your position for a court case.
3. Offer written payment plans. A signed plan with a due date and a default clause converts a lawsuit into a cash stream. No partial payment without a signed plan - an accepted partial payment can reset the accrual and, in some jurisdictions, create an implied agreement.
4. Do not use self-help. No lockouts, no shutting off utilities, no holding property. The landlord's remedy is the statutory process, and getting it wrong turns a $4,650 collection into a damages claim.
5. Refer the non-responsive accounts to counsel on a fixed date you set now, and log the referral date. Delay is the most common way these balances become uncollectible.

Genuine hardship. Treat it as a documented exception, not a waiver. Request documentation, propose a longer plan at a lower monthly amount, and keep the file current. Then apply the same standard to the next resident in the same position - a hardship policy applied inconsistently is both a fair housing exposure and, in subsidized units, a compliance finding.