Commercial investment property should be leased and managed to established budgets and benchmarks. Only the very basic of industrial buildings with single small tenants would not need to be so controlled. Office property and retail property would almost always have budgets and benchmarks to reach each year. Tenant mix will also be part of the decision process when it comes to future income and the expenditure for a given property with multiple occupants.
So what we are saying here is that all property performance should be tracked to a financial year budget of income and expenditure. By setting budgets for both of these categories the landlord can target net returns and prepare the property for growth or sale as the case may be. The real estate agent working for the landlord should implement plans and processes to put these budgets and benchmarks into place.
So budgets in themselves seem a basic business function in the property management service of the investment property, although consider these questions when establishing any new budgets and benchmarks for a building:
What happens when the leases come to an end?
Is there a need for expansion or contraction of tenancy space?
Do you need to move tenants?
What happened to the expenditure last year and how will that impact property expenditure this year?
What rent should the building achieve when any new lease is needed?
What are the standards of leasing in both term of years and option term that the landlord requires?
Should an incentive be given to entice any new tenant to lease space in the property and if so what type?
On what basis should the rent be reviewed and at what frequency?
What money should the landlord spend on running the building in the coming year?
What contracts for maintenance works should be re-tendered to gain better economy or performance?
Who looks after the common area in and around the building and how will that be done?
What type of tenants should the building attract and what are the plans to find them?
How long does the landlord want to keep the property and how will that impact the maintenance and letting plans for the property?
The list can go on. Importantly the property manager for the property is helping the landlord with the key ideas and concepts to improve the property performance over the coming months and years.
To set up a new building budget for a property, make a list of questions just like those above and start to set firm and formal answers into a business plan for the property. This will make the property more stable and allow the landlord to achieve greater control as the year passes.