Financial Analysis and Budgeting
What the domain tests
Financial Analysis and Budgeting tests the supervisor’s ability to build and read an operating budget, calculate NOI and cash flow, explain variances, and connect property-level decisions to owner return. Expect questions on revenue deductions, expense classification, accrual treatment, and reforecasting.
Core rules and concepts
- Gross potential rent (GPR) is rent at 100% occupancy at market rents. Effective gross income (EGI) = GPR − vacancy loss − concessions − collection loss + other income.
- NOI = EGI − operating expenses. NOI excludes debt service, income taxes, depreciation, and most capital expenditures; those belong below the NOI line or in cash-flow analysis.
- Classify costs correctly: routine repairs and turn costs are operating expenses; roof replacement or appliance replacement that extends life is capital; reserves are funded from cash flow.
- Variance analysis states dollar and percentage variance, whether it is favorable or unfavorable, and the driver. A revenue shortfall is unfavorable; an expense underrun is favorable.
- Reforecast when actuals diverge materially; do not wait for year-end.
Worked example
GPR is $1,200,000. Vacancy loss is 5% ($60,000), concessions 2% ($24,000), collection loss 1% ($12,000), and other income $60,000. EGI = $1,200,000 − $60,000 − $24,000 − $12,000 + $60,000 = $1,164,000. Operating expenses are $480,000, so NOI = $684,000. If annual debt service is $400,000, cash flow before capital is $284,000. Subtracting debt service from EGI would overstate expenses and understate NOI; the supervisor must keep the lines separate.
Traps
Putting debt service or capital expenditures inside NOI; mixing cash and accrual; annualizing a partial-year item; treating GPR as collected income; and calling every expense overrun “unfavorable” without checking whether it saved a larger cost.