Operating Budgeting 2024
13
Mar

Chicago Property Management Best Practices – Operating Budgets

Managing an apartment building in Chicago without an operating budget would be like driving cross-country without a map or directions. You’d generally know which direction to go and which cities to pass, but you’d be much more likely to get lost along the way. Further, how would you know if you’re making good time or keeping your schedule?

The point is that it’s difficult to understand your building’s performance without a plan to hit your goals and track your progress.   This is why we recommend making and referencing an operating budget.

Tips for creating and tracking a budget:

1. Start with an expected (or targeted) annual income amount. The property will collect this total funds via rent, fees, etc. that year.   As a guide, use the previous year’s total income and factor in how your renewals, new leases, and vacancies will add and/or subtract from last year’s amount.

2. Use the previous year’s totals and your known future amounts for operating expenses like property tax, utilities, insurance, and repairs. Consider factoring those into the budget if there were unexpected expenses last year.

3. Now that you’ve identified your budgeted operating income and expenses, you can calculate your net operating income. That’s what’s left of your operating income after you’ve paid your operating expenses.    For building operations, net operating income is the tried-and-true performance metric.

4. Last, divide your annual totals for each budgeted category by 12 to get an approximate monthly value. As you operate, compare your monthly actual amounts to your monthly budgeted amounts.   Do the same for year-to-date actual and budget.

These comparisons allow you to determine whether you’re operating a budget better or worse. You can also determine whether you’re on track to achieve your goal, underperform, or outperform. If you’re operating worse, you’ve identified where a course correction is needed. If operating worse, now you’ve identified where a course correction is needed.   If better, perhaps you’ve identified a strength you should further highlight or leverage.

We hope you found this best practice helpful!   We certainly believe in its value – and have made it a fundamental process here at Root Realty.

Since our founding in 1983, we’ve been committed to providing apartment owners and investors with effective, uncomplicated, and transparent property management services in Chicago.

If you own apartments in Chicago and are looking for help with property management, we’d love to hear from you! My email and phone number are below. I’m looking forward to hearing from you!

Danny Sider

Director of Property Management – Root Realty, Inc.

dsider@rootrealty.com — 773.904.1382