Tip of the Month - November, 2021


Source: Property Management & Managing Risk
             By: Robert C. Kyle & Floyd M. Baird, RPA/SMA

To present the Owner with a stronger picture of the property’s income potential, the Manager should prepare a five year forecast.  This is a long-term projection of estimated expenditures and income based on predictable market changes.  The Manager should scrutinize all income sources and study the market trends affecting them. He or she must take into consideration the current rate of rental increases in the area, the potential for growth or decline in the area and rent increases stemming from any projected improvements to the property.

Operating expenses for the five year period must be realistically estimated, based on observable trends.  The major influences to take into account are the rate of inflation, increases in the cost of labor and supplies, tax hikes and raises in insurance premiums.

Make realistic projections: A Property Manager who is creating a five year forecast for a property must be cautious, conservative and realistic in his or her projections of market activity.  The Owner will rely on the Manager’s expertise in analyzing the market and creating a management plan. If that plan is based on over enthusiastic projections of growth, the Owner’s financial posture may be adversely affected.  By the same token, a Manger whose projections are overly cautious may deprive the Owner of income opportunity.

This web page was updated on 10/31/2021.