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July 26, 2016 10:37AM

Building Better Budgets

For many real estate investment and property management firms, budgeting season—that all-encompassing, paramount process that forecasts your profitability next year—is about to begin.

And precisely because the budgeting process is so integral to your firm’s operation, the best real estate software systems continually aim to enhance the way you and your team undertake the all-hands-on-deck budgeting process.

Yardi, for instance, has recently unveiled “FLO”: Forecast Lease Options, a particularly powerful budgeting enhancement that provides a more succinct and streamlined approach to forecasting leasing revenues. By utilizing a color-coded grid, FLO allows you to sort, filter, and group units to produce useful data visualizations that can empower quicker and easier decision making. While its capabilities are indeed advanced, FLO is a valuable option for any real estate management company looking to reduce budget process times while increasing budget accuracy.

Beyond forecasting the rate of return on your units, comprehensive budgets must incorporate all aspects of expenses as well. On the property and asset operations side, several budgeting tools excel at streamlining the process, each with its own strengths. MRI and Yardi both seamlessly handle capital expenditures—operating expenses such as CAM and Tax—by pulling data from your operating ledgers. And by using the formulas and setup for recoveries already in place, you can save countless hours and errors when budgeting and forecasting. Yardi, for example, takes an extra step by also pulling data for your construction projects and mortgages/debt to round out virtually all of the key components of your expense budget as well.

Understanding that corporate budgets should be as accurate as asset forecasts, the budgeting process must accurately take into account everything on the corporate side, from payroll and benefits to marketing and brokers’ fees, as well as shared services such as IT and legal fees. (RealPage, in particular, does this on the residential side particularly well. See this recent story about how RealPage’s integration with Yardi worked powerfully for one of our major clients.) And with the right software platform, there is no reason why your corporate budgeting process should live separately from your asset management budgeting.

The budgeting modules within Yardi and MRI have many of these corporate expense worksheets built right in, though with the ability to separate them out. The result is that your payroll department can pull out and work on their expense workbooks without seeing or needing to wait for the workbooks from the payroll, marketing, or operations teams. These different aspects of your overall budget can then be secured, delegated, and improved upon separately, while still being dynamically integrated to your final forecast.

Of course, everything mentioned above focuses on the primary struggles still plaguing many real estate operators—the ability to generate a single annual budget. Where a budgeting tool really shines is after you have streamlined the annual budgeting process. Now that all the information is in the system, you have the ability to create multiple forecasts easily; this may include incorporating multiple scenarios that include the acquisition or disposition of assets, high and low estimates around major tenancy changes, or significant variations in seasonality and weather that may impact property operations. In addition, the ability to create these forecasts on a more frequent (say, quarterly) basis, give real estate owners, operators, and investors the ability to adjust their outlook without overhauling all the work done to date.

The budgeting process is inevitably a massive enterprise, inarguably one of the most important undertakings for any real estate management company. It therefore behooves you to ensure that the software platform you already have is working at maximum capacity to make this mission-critical budgeting process as accurate and efficient as possible. Is yours?

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Faraz Memon
About the Author

Faraz Memon

Faraz joined the REdirect team in 2009 to help grow the company. As a Principal, Faraz’s focus is on ensuring REdirect clients get the highest value for their real estate technology investments. His vision for each client is to fully leverage technology to streamline business processes. 

 

Faraz has extensive experience …