Property Operations and Financial Management
Property Operations and Financial Management
This domain tests how well you can run the property as a business: reading financial statements, building and monitoring the operating budget, explaining variances, and calculating occupancy and revenue metrics that drive NOI.
Core rules and concepts
- Operating budget: estimate income and expenses by chart-of-accounts line; compare actual to budget monthly and explain variance by rate, volume, and timing.
- NOI = effective gross income minus operating expenses. Debt service and capital expenditures sit below NOI.
- Accrual accounting matches income and expenses to the period; cash basis records when cash moves. Know which method the owner reports.
- Physical occupancy = occupied units divided by total units. Economic occupancy = collected rent divided by gross potential rent; it captures vacancy, concessions, delinquency, and loss-to-lease.
- Effective rent = contract rent minus concessions, amortized over the lease term.
- Capex versus opex: replacing a roof is capital; repairing it is operating. Replacement reserves fund future capital needs.
Worked example
A 120-unit property has market rent of $1,000. Physical occupancy is 95%, or 114 units. Concessions average $50 per occupied unit, and delinquency is 2% of scheduled rent. Scheduled rent = 114 x $1,000 = $114,000. Concessions = 114 x $50 = $5,700. Collected before delinquency = $108,300; after 2% delinquency = $106,134. Economic occupancy = $106,134 divided by $120,000 = 88.4%. Physical occupancy is 95%, so the 6.6-point gap is the revenue leak the manager must explain.
Traps
Do not report physical occupancy as economic occupancy. Do not bury capex in operating expenses. Do not annualize a single month's concession without checking lease terms. Do not give a variance number without a cause and a corrective action.