the Month - November, 2021
FIVE YEAR FORCAST
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.
web page was updated on 10/31/2021.