Financial Management and Budgeting
The budget cycle
Budgets are built bottom-up from the rent roll and market rents, then spread monthly. Revenue lines: gross potential rent, vacancy and concession loss, collection loss, and other income (fees, utility reimbursement, parking, pet rent, laundry, storage, damages). Expenses follow a chart of accounts so results compare across properties and periods. Build in seasonality - heavier turnover in summer, higher utilities in winter - and keep the capital plan separate from operating expenses.
NOI and what it excludes
Net operating income = effective gross income − operating expenses. NOI excludes debt service, depreciation, income taxes, and capital expenditures. Replacement reserves are typically funded below NOI. Candidates lose points by coding a roof replacement as repairs and maintenance, or by deducting mortgage interest when computing NOI.
Variance analysis
Compare actual to budget monthly in dollars and percent, and explain material variances in writing. For revenue, actual above budget is favorable. For expenses, actual above budget is unfavorable - a common trap when a question labels a positive dollar figure 'favorable.'
Levers when NOI lags
Move rents to market at turn and renewal, reduce concessions, tighten delinquency follow-up, re-bid service contracts, control overtime and turn costs, and audit utility billing and recovery.
Worked example
Budgeted repairs $20,000; actual $23,000. Variance is $3,000 unfavorable, 15% over budget. If it stems from one-time storm damage, disclose it; if recurring, reforecast the year and adjust the next budget.
Rule of thumb
Fund replacement reserves at roughly $250–$300 per unit per year, higher for older assets with mechanical systems near end of life.