By Mel Schultz Commercial Properties, Budget Analysis budget, forecasting

Mastering Budget Projections for Commercial Properties

Mastering budget projections for your commercial portfolio helps you manage your properties more smoothly and enjoy long-term profitability. Savvy commercial property owners and their managers leverage technology, stay on top of market trends, and proactively manage expenses by reviewing data and sticking to a strategic plan. Here are eight ways you can improve your budget projection skills and improve profitability this year.

1. Understand Budget Basics

Mastering Budget Projections: Key Strategies for Success

A commercial property budget contains several important components. Tracking these components will help you understand where your money comes from and where you are spending it. A commercial property budget should include the following items:

Operating expenses, such as maintenance, utilities, landscaping, security, and insurance.
Capital expenditures, including large-scale improvements such as roof replacements, structural repairs, and HVAC upgrades.
Revenue streams, such as rent, parking fees, advertising, and other services you offer.
Reserves for contingencies, including funds for emergency repairs and legal fees.

2. Leverage Historical Data

If you have data from prior years, leverage it to find trends and patterns in your revenue and spending. This can help you establish more realistic baselines for future budget projections. Consider reviewing seasonal variations in utility costs or maintenance, historical occupancy rates for your buildings and how they impact revenue, and trends in vendor pricing.

3. Monitor Market Trends

Local real estate and economic data can give you a picture of where your market is headed. When Clarity Commercial works with clients on budget projections, we take a close look at market trends. We consider economic factors such as interest rates, inflation, and property tax changes as well as the local competition’s rental rates and amenities. Last, we take a look at what tenants are demanding from their spaces. All of these factors contribute to local market trends and should be considered when making budget projections.

4. Implement Financial Technology

Property management software and other financial tools can automate calculations, generate reports, and offer you real-time insights into your portfolio. We use technology that empowers us to automate expense tracking, forecast different models, and integrate our accounting software so our financial records are accurate.

5. Anticipate Occupancy Fluctuations

Any good budget projection anticipates fluctuation in occupancy rates, as occupancy rates directly affect your revenue. We recommend most budget projections include a healthy vacancy buffer to cover potential downtime. Your list of expenses should also include marketing and tenant retention efforts.

6. Include Maintenance Expenses

Sometimes, we see property owners plan for major capital improvements in their budgets, but neglect to include costs for regular maintenance. However, including regular maintenance costs in your budget projections can save you money in the long run, as maintenance can avoid costly big repairs down the road. Be sure routine inspections for your buildings’ systems are included in your budget, as well as snow removal and landscaping.

7. Adjust Your Budget Dynamically

Budget projections are predictions, not actual reality. That’s why it pays to review your projections regularly and make adjustments. We conduct quarterly budget reviews to stay on top of changing market conditions, react to a changing economy, and to uncover opportunities to renegotiate vendor contracts.

8. Communicate Your Budget Goals

Whether they are your property manager, your spouse, your business partner, or investors, you need to communicate your budget goals and budget projection with the key stakeholders in your portfolio. This will ensure that everyone is working together toward your goal for your properties. Budget projections take time and experience to master. The Clarity Commercial team has expertise and years of experience helping our clients make plans for their properties and increase their profitability. Contact our team today to learn how we can help you master budget projections

For more information or to request a free estimate, visit their website at https://myclaritycommercial.com/ or give us a call at (952) 370-224-2699.

Affiliations & Credentials: We are proud members of IREM, CCIM and MNCAR along with various professional organizations, and hold relevant certifications in the real estate management field. Our affiliations and credentials demonstrate our commitment to excellence and our ongoing efforts to stay up-to-date with industry best practices.

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June 21, 2021

By Mel Schultz Budget Analysis budget, commercial real estate, portfolio

Building Your Real Estate Portfolio Budget

Any successful commercial real estate owner will tell you a real estate portfolio budget is absolutely essential for scaling your investments. Not only does a budget help you understand how much you make and spend each month, it can help you plan improvements to your properties to increase revenue in the future. It can also reveal when you are ready to make your next property investment.

If you’re just starting to build your real estate portfolio budget or your current budget needs an update, here are a few tips from the commercial real estate professionals at Clarity Commercial.

Real Estate Portfolio: Establish Your Portfolio’s Goals

Your budget is about more than numbers. It’s a vehicle to help you achieve your goals. Before you create your portfolio budget, consider what your 1-year, 3-year, and 5-year goals are. Do you want to increase revenue by 15 percent? Complete a major renovation? Purchase a new property? Whatever your goals are, you want to build your budget to meet them.

Start with Your Expenses

Take some time to gather and list all of the expenses associated with your properties, then include them in your real estate portfolio budget. Include maintenance, repairs, management, legal, staff, utilities, mortgages, and insurance costs. Don’t forget to calculate your vacancy costs as expenses, either. Vacant spaces cost you money each month and filling them should be your top priority.

Then Establish Your Revenue Targets

Once you have a grasp on your monthly expenses, you will have an idea of the amount of revenue you must bring in each month to break even or make a profit. If your current portfolio is covering your expenses, great! What else could you do to maximize revenue? If your current portfolio does not cover your expenses, work with a property management company to work out a plan for getting back into the black.

Put Your Profit to Work

If your portfolio is making a profit each month, think about how you want to reinvest that profit back into your portfolio. Are there capital improvements you need to make to your existing properties to attract future tenants? Perhaps there is a property you’d like to add to your portfolio. Your budget can help you forecast these future expenses and manage your profit so you’ll have the funds to achieve your goals.

If creating a budget for your real estate portfolio sounds intimidating, get in touch with Clarity Commercial. We’re experts in commercial real estate budgeting and forecasting. We can help you get a grasp on your expenses and revenue and plan for future investments. Contact us to learn how we can help you.

For more information or to request a free estimate, visit their website at https://myclaritycommercial.com/ or give us a call at (952) 370-224-2699.

Affiliations & Credentials: We are proud members of IREM, CCIM and MNCAR along with various professional organizations and hold relevant certifications in the real estate management field. Our affiliations and credentials demonstrate our commitment to excellence and our ongoing efforts to stay up-to-date with industry best practices.

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