Developing a Management Plan PDF

4 Developing a Management Plan Learning Objectives After completing this lesson, students should be able to… Describe the main purposes of a management plan from the perspectives of the property manager and the propert...

4 Developing a Management Plan Learning Objectives After completing this lesson, students should be able to… Describe the main purposes of a management plan from the perspectives of the property manager and the property owner Explain the process of conducting a regional analysis Identify the types of neighborhood data that are included in a neighborhood analysis Discuss the major items that a manager investigates when conducting a property analysis Compare the methods used in conducting a property management market analysis with those of a CMA for the sale of a property, and contrast the goals of each Identify the three main ways to increase a property’s NOI Provide examples of the intangible costs that should be included in a cost-benefit analysis Characterize the importance of the final presentation of the management plan Suggested Lesson Plan 1. Give students Exercise 4.1 to review the previous chapter, “Working with Management Clients.” 2. Provide a brief overview of Chapter 4, “Developing a Management Plan,” and review the learning objectives for the chapter. © 2021 Rockwell Publishing  Property Management Instructor Materials 3. Present lesson content: The Management Plan – Preparing the management plan Regional Analysis – Metropolitan statistical areas – Gathering and evaluating regional data – Sources of regional data Neighborhood Analysis – Defining neighborhood boundaries – Gathering and evaluating neighborhood data – Sources of neighborhood data Property Analysis – Basic physical attributes – Attractiveness and condition – Management and leasing – Financial condition EXERCISE 4.2 Regional, neighborhood, and property analyses Market Analysis – Defining the relevant market – Comparing the subject property to the competition – Setting rental rates EXERCISE 4.3 Determining rent based on comparables Analysis of Alternatives – Proposed changes – The cost-benefit analysis Preparing and Presenting a Management Plan – Components of a management plan – Making the plan professional – Presenting the management plan Ongoing Management Planning EXERCISE 4.4 Terminology in reports to the owner 4. End lesson with Chapter 4 Quiz. 2  Chapter 4: Developing a Management Plan Chapter 4 Outline: Working with Management Clients I. The Management Plan A. Management plan: represents a property manager’s strategy for physically and financially managing the property to achieve the client’s goals 1. The management plan usually begins as a management proposal; if ac- cepted by the client, the management proposal becomes the management plan 2. The management plan serves as the manager’s road map while managing the property 3. A management plan is also used to clarify client’s goals, educate the client about property’s condition and status in the market, and suggest changes that would help achieve the client’s goals a. Highest and best use: the most profitable use a property can be put to that is reasonable in light of all legal, economic, and physical limita- tions B. Preparing the management plan involves a process of research and analysis known as the preliminary study, which is comprised of five different types of analyses: regional, neighborhood, property, market, and the analysis of alter- natives II. Regional Analysis A. Regional analysis: a study that focuses on the demographic and economic conditions that affect the supply of and demand for property in the general area where the subject property is located 1. Demographics: characteristics of a human population, such as average family size and median age B. Metropolitan statistical area (MSA): an area, along with adjacent territory, with at least one urbanized population center of 50,000 or more and a high degree of social and economic conformity; there are currently hundreds of MSAs in the U.S. 1. Some large MSAs with populations over 2.5 million people are divided into smaller regions called metropolitan divisions. 2. Micropolitan statistical area: an area, along with adjacent territory, with at least one urban population cluster of at least 10,000 but less than 50,000 and a high degree of social and economic conformity. 3. Combined statistical area (CSA): a larger area that may encompass mul- tiple metropolitan or micropolitan areas that share a commuting zone or media market; more common in commercial or industrial regional analysis C. When gathering data for the regional analysis, the property manager is inter- ested in both current conditions and future trends, because it’s important to know whether region is growing, declining, or stable 3  Property Management Instructor Materials 1. The manager investigates the region’s population size and expected changes, demographic profile, economic conditions, infrastructure, and government and social issues D. The U.S. Census Bureau website is the primary source for regional economic and demographic data 1. Data is from U.S. census on housing and population taken every ten years 2. Other useful surveys include the Economic Census (every five years); the Ameri- can Community Survey (yearly); the Statistical Abstract of the U.S.; and the American Housing Survey (every two years) 3. The Census Bureau also compiles information about market absorption and va- cancy rates, new home construction, and housing patterns 4. Other sources of information include state and local governments, local business groups, the Board of REALTORS®, and the local MLS; trade and professional organizations; and companies that compile and sell statistics from the above sources III. Neighborhood Analysis A. Neighborhood analysis: similar to regional analysis, but the focus is on the smaller geographical area surrounding the property 1. Neighborhood: a geographic area in which the residents share common charac- teristics or the properties share a similar land use; may be several city blocks, or several square miles B. Neighborhood boundaries are defined by natural and artificial barriers 1. Zoning: ordinances that divide a community into areas that are set aside for spe- cific types of uses; can provide neighborhood boundaries, but rarely defines the neighborhood entirely 2. Economic and social barriers include an area of upscale homes next to an area of older homes; or a historically ethnic enclave like “Chinatown” C. Gathering and evaluating neighborhood data is the next step in the neighborhood analysis 1. Land use and zoning can affect neighborhood trends by inhibiting or encouraging more development a. Impact fees: upfront fees municipalities charge developers to help offset the costs of additional public services required by developments 2. The property manager will determine which type of property is dominant in the neighborhood (single-family homes or apartments, for example) 3. The manager will consider property values, including historic and current trends 4. Rental rates, including historic and current trends, are also considered 5. Vacancy rates tend to fluctuate, so managers look for overall trends in the demand for rental properties 6. Demographics and economic/education levels help to describe the neighbor- hood’s potential customers, renters, and employees 4  Chapter 4: Developing a Management Plan 7. Curb appeal (a neighborhood’s overall condition and appearance) and the neigh- borhood’s distinctive features can help or hurt property values and rent 8. The neighborhood’s transportation issues (and planned expansion, if any) affect access to employment and stores and offices 9. Finally, the manager considers the neighborhood’s state in the life cycle (whether it is in a period of growth, stability, or decline) D. Sources of neighborhood data come from many of the same sources used for regional data; zoning and land use information can be obtained from the local building or planning department IV. Property Analysis A. A property analysis reviews every aspect of the property relevant to its management B. First, the manager takes stock of the property’s basic physical attributes, such as its location, lot size, and building measurements and features (square footage, number of floors, number of units, and unit sizes and layouts) C. Next, the property manager examines the property’s overall attractiveness and con- dition of the building’s exterior, common areas, rental areas, unique features, and operating systems D. The manager also needs to determine how well the property is currently being man- aged on a day-to-day basis, including leasing and tenant relations, staffing, policies and procedures, and the current marketing strategy E. An analysis of the property’s overall financial health will help the manager determine whether the current strategies are working or need improvement 1. Residential managers will want to determine not only the total amount of rent received for all units, but also the amount of rent received for each type of unit; commercial managers will want to note the income received per square foot of leased space 2. The manager should document the property’s expenses, as well as its debt ser- vice: the principal and interest due on any mortgage or other outstanding debts 3. Cash reserves: funds set aside for both planned and unplanned maintenance or repairs; the manager should note recent expenditures and deposits, and whether funds have been sufficient 4. The manager should examine the amount and type of insurance coverage main- tained on the property and confirm that policies are current EXERCISE 4.2 Regional, neighborhood, and property analyses V. Market Analysis A. In a market analysis, the manager evaluates how the subject property compares to competing properties; this evaluation is then used to set rental rates B. The first step in performing a market analysis is determining the relevant market for comparison 5  Property Management Instructor Materials 1. The relevant market is usually a submarket: a smaller segment of the larger mar- ket that is usually made up of buildings that are similar in size and character, with similarly sized rental units or spaces, and with comparable rental rates 2. The manager needs to define the geographical limits of the submarket carefully, and may need to include nearby neighborhoods C. Comparing the subject property to the competition is similar to performing a com- petitive market analysis (CMA) in real estate transactions; adjustments are made to rental rates rather than prices 1. Three or four comparables should be chosen that are similar to the subject prop- erty in size, number of rental units or spaces, and amenities 2. Information gathered about each comparable will vary based on whether the sub- ject property is residential or commercial 3. A comparison worksheet may be used for the market analysis; the worksheets have spaces to enter specific information about the subject property, along with each comparable a. The property manager then evaluates how the subject property’s current con- dition differs from each comparable, for better or worse b. The rent for each comparable is adjusted up or down to reflect differences between the comparable and the subject property c. The resulting figures are used to evaluate the subject property’s rental sched- ule: a list of the rental rates assigned to the different types of units 4. The information gathered is used to set appropriate rental rates for the subject property a. The goal is to strike a balance between maximizing occupancy and maximiz- ing income, by considering vacancy rates of other properties b. Once the basic rent is established for each unit type, the manager then makes adjustments for individual units’ specific features (such as a great view or balcony) EXERCISE 4.3 Determining rent based on comparables VI. Analysis of Alternatives A. Analysis of alternatives: an analysis in which the manager evaluates possible physical and operational changes to the property B. The manager must evaluate whether each change will increase the property’s net operating income (NOI) 1. There are three ways to increase NOI: reducing expenses, raising occupancy rates, or raising rents 2. Even if changes don’t increase NOI, they may be necessary to preserve existing value and/or income level, or to comply with legal requirements C. Proposed changes generally fall into one of three categories: operational changes, physical changes, or changes in use 6  Chapter 4: Developing a Management Plan D. Operational changes impact how a property is managed, and include changes to mar- keting activities, maintenance schedules, staffing, rental rates, and tenant rules and policies 1. Some changes are designed to increase or preserve NOI by decreasing expenses E. Physical changes are designed to increase or maintain a property’s value 1. Almost every property is vulnerable to loss in value (depreciation); two common causes of depreciation are physical deterioration and functional obsolescence 2. Rehabilitation: correcting physical deterioration, such as a leaky roof or peeling paint a. Physical deterioration: depreciation caused by wear and tear, or damage, to a building’s physical components b. Physical deterioration can be curable or incurable; curable physical deteriora- tion is sometimes referred to as deferred maintenance 3. Remodeling: attempts to address depreciation caused by design defects a. Functional obsolescence: a loss of value due to design defects or outdated elements b. Like physical deterioration, functional obsolescence is either curable or in- curable F. The analysis of alternatives may suggest a change in use, such as converting apart- ments to condos, or demolishing an old building and constructing a new building 1. The highest NOI and return on the owner’s investment is usually achieved when a property is operating at its highest and best use G. Cost-benefit analysis: a technique that is used to determine the costs and the benefits of a particular change over a given period of time 1. Calculating costs involves calculating both tangible and intangible costs a. Tangible costs include labor and materials b. Intangible costs include loss of business during a remodel 2. Calculating benefits involves calculating the financial benefit(s) that will be gained from the proposed change, such as an increase in rental income, a de- crease in operating expenses, an increase in property value, and/or additional tax deductions (such as depreciation) 3. Payback period: the period of time it takes to offset the cost of an improvement VII. Preparing and Presenting a Management Plan A. The components of a management plan may include an executive summary; a state- ment of the client’s objectives; a narrative presentation of the regional, neighborhood, and market analyses; a report on the property’s current status; a list of proposed changes and the cost-benefit analysis; a marketing plan; short- and long-term bud- gets; and a conclusion and recommendations 1. An executive summary outlines the information contained in the body of the plan, and allows the client to see the main points and recommendations without having to read the entire document 7  Property Management Instructor Materials 2. The statement of client’s goals reminds the client of the scope of the manager’s analysis 3. The narrative presentation of the regional, neighborhood, and market analyses summarizes the results of these analyses in descriptive terms and explains how they inform the manager’s recommendations 4. The report on the property’s current status includes information on the property’s physical condition and its management operations, which inform the client of the starting point used in formulating proposed changes 5. The proposed changes and cost-benefit analyses section lists any recommended physical and operational changes, and includes a comprehensive cost-benefit analysis for each proposed change 6. A marketing plan section may list extensive changes; otherwise, marketing changes would be included as a part of the proposed changes section 7. The management plan should include a short- and long-term budgets section a. Operating budget: estimates the property’s income and expenses for the com- ing year on a month-to-month basis b. Long-range budget: shows predicted changes in income and expenses over a specified number of years (such as five years) c. Capital budget: a budget for reserve funds used to replace equipment or make improvements 8. The conclusion and recommendations section summarizes the manager’s recom- mendations, and distinguishes between essential and optional changes B. Regardless of its length, the management plan should be professionally organized and thorough; errors and lack of attention to detail will decrease the client’s confidence in the manager’s competence 1. Letter of transmittal: a cover letter from the manager to the client, presenting the report C. The manager should present the management plan to the client in person if possible 1. The client may then approve the plan as presented and authorize all changes rec- ommended, authorize only the changes that will preserve the property’s value, decide against any changes, ask the manager for changes and a resubmittal of the proposal, or decide against hiring the property manager VIII. Ongoing Management Planning A. The management planning process continues after the manager has been hired 1. The manager must keep his regional, neighborhood, and market analyses up to date 2. The management plan should be reconsidered annually, or more often in a vola- tile market 3. A management plan can be used to evaluate new requests made by the client EXERCISE 4.4 Terminology in reports to the owner 8  Chapter 4: Developing a Management Plan Exercises EXERCISE 4.1 Review exercise To review Chapter 3, “Working with Management Clients,” read the following True/False questions aloud to students and have them jot their answers down on a piece of paper; discuss answers together. Questions about business entities: 1. The profits paid out by a corporation to its stockholders are called dividends. 2. There is no such thing as a corporation that doesn’t pay double taxation. 3. A limited partnership always includes at least one general partner and one limited partner. Questions about the manager-owner relationship: 1. A property manager usually makes weekly financial reports to the owner. 2. It’s extremely rare that the goals of the owner affect how a manager makes main- tenance and other operational decisions. 3. Linda manages a small office building. Ownership changes hands and the new owner hires a new property manager. Linda provides the new manager with various ledgers, bank account information, and various documents related to the property. This process is sometimes called the handover. 4. The manager and owner may choose to document the end of their relationship with what’s usually called a subrogation agreement or “finalizing statement.” Answers: Questions about business entities: 1. TRUE. The term dividend refers to the payments of profits to shareholders. (Note that not all corporations pay dividends; instead, the business may retain their profits and invest them.) 2. FALSE. S corporations do not pay double income tax. However, the IRS imposes a limit how many people can own shares in an S corporation (along with other restrictions). Thus, many businesses do not qualify for S corporation status. 9  Property Management Instructor Materials 3. TRUE. A limited partnership must include a general partner. The general partner manages the business and is personally liable for its debts. Questions about the manager-owner relationship: 1. FALSE. The manager usually makes monthly and annual reports to the owner. Quarterly reports are also common. 2. FALSE. The owner’s financial and other goals often affect the choices a manager makes. For example, someone managing a property for an older owner who wants to maximize immediate income will tend to shy away from optional improvements and put extra emphasis on cost-cutting measures. 3. TRUE. Handover or takeover refers to the transfer of basic property information from the old manager to the new manager. 4. FALSE. Ideally, the manager and owners should formally end their relationship with a written agreement; it is generally called a termination agreement. EXERCISE 4.2 Regional, neighborhood, and property analysis A manager would examine each of the following issues while preparing a manage- ment plan. Ask your students to state whether he would study them in the regional, neighborhood, or property analysis. 1. Bad congestion on freeways coming into the city. 2. Congestion on adjacent streets that makes it difficult for tenants to exit an office property parking garage. 3. Poor cell phone reception in the building. 4. High disposal rates charged by the county to handle the waste of industrial tenants. 5. Inefficient practices of the current management, including poor tenant relations. 6. Poor curb appeal of the subject property. 7. High state taxes on business income. 8. Run-down appearance of nearby buildings. 9. High unemployment in the western portion of the state where an industrial property is located. 10. Park within short walking distance where workers in the office building can eat lunch. 10  Chapter 4: Developing a Management Plan Answers: 1. REGIONAL ANALYSIS 2. PROPERTY ANALYSIS 3. PROPERTY ANALYSIS 4. REGIONAL ANALYSIS 5. PROPERTY ANALYSIS 6. PROPERTY ANALYSIS 7. REGIONAL ANALYSIS 8. NEIGHBORHOOD ANALYSIS 9. REGIONAL ANALYSIS 10. NEIGHBORHOOD ANALYSIS EXERCISE 4.3 Determining rent based on comparables Juan manages a two-story, six-unit apartment building. After a long tenancy, the tenant in the nicest unit is moving out. Her one-bedroom apartment is on the second floor overlooking a park with a pond (it’s the only unit with a park view). Because the unit has been occupied for many years, Juan and the owner agree on a complete update: new stove, counters, and refrigerator. They will also add a washer-dryer combo and new carpet (plus repainting, of course). Juan needs to set rent for the refurbished unit. He looks at three competing one-bedroom units: A, B, and C. Unit A. Second floor unit. No park view. Fully upgraded. Rent: $1,400. Unit B. Second floor unit. Modest park view. Not upgraded. Rent: $1,300. Unit C. Second floor unit. No park view. Not upgraded. Rent: $1,200. What rent amount makes the most sense for Juan to charge for his unit? Answer: Based on these three units, the view is worth about $100 ($1,300 unit B – $1,200 unit C = $100). The upgrade is worth about $200 ($1,400 unit A – $1,200 unit C = $200). The unit is therefore worth about $100 more than Unit A—that is, it should be rentable for $1,500 a month ($1,400 unit A + $100 view = $1,500). 11  Property Management Instructor Materials EXERCISE 4.4 Terminology in reports to the owner Select the term that is associated with the actions described below. Deferred maintenance Highest and best use Transmittal letter Analysis of alternatives Payback period Curb appeal 1. The owner converts the ground floor apartments to storefronts in order to make the most money possible from the space. 2. The manager spruces up the building by adding new awnings, power washing the sidewalk and entry, and adding two planter boxes flanking the building entry. 3. In a report to the owner, the manager evaluates whether refurbishing several older apartment units makes financial sense. 4. The manager adds a one-page cover note that describes the package of reports she’s included for the owner. 5. The manager, when proposing an upgrade of the wiring in an industrial facility, notes that with the higher rent that can be charged as a result, it would take five years to recover the cost of the improvements. 6. The owner and manager decide to postpone repainting in order to stay within the budget. Answers: 1. Highest and best use. In general, the owner puts the property to whatever use offers the highest payback. 2. Curb appeal. Improvements made to the front area and the face of the building create a good first impression; this is curb appeal. 3. Analysis of alternatives. The manager may perform a cost-benefit analysis of po- tential improvements or operational changes; the process is called the analysis of alternatives. 4. Transmittal letter. When sending reports to the owner, a manager generally includes a cover letter that may be referred to as a transmittal letter. 5. Payback period. The payback period is the amount of time it would take to recover the cost of an improvement. 6. Deferred maintenance. Repair or other maintenance work that’s postponed in order to save money (or for any other reason) is called deferred maintenance. 12  Chapter 4: Developing a Management Plan Chapter 4 Quiz 1. A management plan usually starts life as a: 6. Curb appeal refers to: a) management agreement a) rental rates in a particular neighborhood b) management proposal b) the overall condition and appearance of c) profit and loss statement buildings in a neighborhood d) rental schedule c) vacancy rates in a neighborhood d) zoning requirements in a neighborhood 2. The most profitable use that a property can be put to, considering legal, economic, and physi- 7. What does neighborhood data have in common cal limitations, is its: with regional data? a) break-even point a) Both address zoning issues b) highest and best use b) Both are obtained by in-person observation c) optimal use c) Both are obtained primarily from the local d) point of diminishing returns building department d) Both may be kept on file for use with future clients 3. The unit defined by the Census Bureau that’s usually used in identifying the boundaries of a property’s region (for purposes of regional 8. Property analysis will look at all of the follow- analysis) is the: ing, except: a) census tract a) access to transportation b) congressional district b) building’s exterior condition c) metropolitan statistical area c) lot size d) zip code d) number of units 4. Data for a regional analysis can be gathered 9. All of the following are questions that a from all of the following, except: manager will want to ask about a property’s a) Census Bureau management and leasing practices, except: b) local Chamber of Commerce a) current and past occupancy rates c) personal inspection b) deferred maintenance in HVAC and plumb- d) trade and professional organizations ing systems c) marketing strategy d) number of on-site staff 5. Which of the following ways of defining neighborhood boundaries is the subtlest, and therefore most likely the most difficult for a 10. The principal and interest due on mortgage manager to recognize? payments are known as: a) Freeway a) capital expenditures b) River or lake b) cash reserves c) Social barriers c) debt service d) Zoning boundary d) operating expenses 13  Property Management Instructor Materials 11. Within the larger market of apartment build- 15. An operating change intended to make a prop- ings, Janet decides to focus her analysis on erty more profitable may include: apartment buildings that contain 50 to 100 a) decreased maintenance expenditures units, that are recently built, that have above- b) increased advertising activity average finishes and luxury amenities, and c) increased rental rates that are within walking distance of the city’s d) All of the above downtown core. This would be considered a: a) micropolitan statistical area 16. An example of a loss of value due to physical b) neighborhood deterioration would be: c) submarket d) target demographic a) energy-inefficient wood-frame windows b) lack of high-speed internet c) outdated kitchen appliances 12. When performing a competitive market analy- d) peeling paint sis, a manager would want to obtain all of the following information about a comparable, except: 17. Patricia finds that switching the building that she manages from steam heat to natural gas a) advertising strategy would cost $60,000 for labor and materials. On b) age and condition the other hand, it would reduce energy costs by c) rental rates an expected $18,000 per year. Patricia is putting d) vacancy rates together a: a) building analysis 13. A manager finds that a rival property has a 0% b) cost-benefit analysis vacancy rate. This would likely be an indication c) profit and loss statement that: d) rent schedule a) the property’s rental rates are optimal b) the property’s rental rates are too high 18. The length of time over which the cost of an c) the property’s rental rates are too low improvement will be gradually recouped is d) the subject property should set rental rates known as its: at or below those of the comparable a) break-even period b) highest and best use 14. As part of his management proposal, a prospec- c) payback period tive manager thinks that a significantly higher d) sunk costs rent could be charged if a building’s units all received major kitchen remodeling; it would take less than ten years to recoup the costs 19. The first item in a management plan or pro- of the upgrade. What section of the proposal posal, which outlines the information in the would include discussion of the pros and cons plan and summarizes recommendations, is of such a move? known as the: a) Analysis of alternatives a) analysis of alternatives b) Building analysis b) executive summary c) Market analysis c) narrative report d) Neighborhood analysis d) statement of client goals 14  Chapter 4: Developing a Management Plan 20. Eliza prepares several different budgets as part of her management plan. One budget, the _____ budget, is over the course of one year, estimating income and costs on a monthly ba- sis. The other, the _____ budget, is for setting aside adequate reserve funds to make long-term improvements. a) capital; operating b) manager’s; owner’s c) operating; capital d) operating; permanent 15  Property Management Instructor Materials Answer Key 1. b) A management proposal, which is a 7. d) Regional and neighborhood data may document that a potential manager both be kept on file for use with future uses to persuade a building owner to clients, as they are general data that hire her as a manager, often becomes don’t change rapidly. the basis for the property’s manage- ment plan once the manager is hired. 8. a) While access to transportation is im- portant, this is an issue that’s outside 2. b) Highest and best use is the most prof- the property’s boundaries. This would itable use a property can be put to. fall under the category of neighbor- Knowing this helps a client obtain the hood analysis. most income possible from the prop- erty. 9. b) All of these are important topics for a property analysis, but the HVAC 3. c) A metropolitan statistical area is de- and plumbing systems are part of the fined as an area with an urbanized building’s condition. Occupancy rates, population center and a high degree of marketing strategy, and staffing all social and economic conformity. When speak to management practices. a regional analysis describes a region, this is the definition that is usually 10. c) Debt service is regular payments of used. principal and interest due on a mort- gage or other debts. Debt service is an 4. c) Other phases in preparing a manage- important part of the property’s finan- ment plan (like neighborhood and cial condition, but it’s not an operating building analysis) involve personal in- expense in the same sense as mainte- spection, but regional data are obtained nance costs and staff salaries. from secondary sources. 11. c) A submarket is made of buildings of 5. c) Some neighborhood barriers can be similar size and character with com- easily gleaned by looking at a map, parable rental rates. This wouldn’t but economic and social disparities, necessarily describe a neighborhood, such as different ethnicities or differ- because such buildings might not nec- ent incomes, may also distinguish one essarily be in close proximity to each neighborhood from another. That may other. require physical inspection to identify subtle differences. 12. a) A competitive market analysis looks at a property’s condition and amenities 6. b) “Curb appeal” refers to properties’ and how they compare with or differ condition and appearance. Well- from the subject property. Advertising maintained, well-landscaped properties strategy does not factor into the equa- have curb appeal, while dilapidated or tion. neglected properties don’t. 16  Chapter 4: Developing a Management Plan 13. c) Unless it’s in a market where there is 19. b) The executive summary is a brief unusually high demand overall, a 0% statement at the beginning of a man- vacancy rate may indicate that rental agement plan or proposal that outlines rates are too low, and that the owner the plan’s main points. could be gaining a larger profit from the property with a slightly lower oc- 20. c) An operating budget is a short-term cupancy but higher rents. budget that estimates income and ex- penses on a month-by-month basis. A 14. a) The last section of a management plan capital budget is for reserve funds that or proposal is the analysis of alterna- will be used to replace equipment and tives, where possible operational and make other expensive long-term im- physical changes to the property are provements. evaluated. 15. d) Increased rents are the most obvious solution, but changes to maintenance or marketing activities may also help increase net operating income. 16. d) Peeling paint is a common example of physical deterioration that might cause depreciation, which would be addressed through corrective main- tenance. The other examples are all functional obsolescence, caused by outmoded features that would be ad- dressed through remodeling. 17. b) A cost-benefit analysis determines the costs and financial benefits of a par- ticular change, over a given period of time. 18. c) The payback period is how long it will take to pay back the cost of making an improvement, based on how much the improvement increases a property’s income. 17  Property Management Instructor Materials PowerPoint Thumbnails Use the following thumbnails of our PowerPoint presentation to make your lecture notes. 18 Chapter 4: Developing a Management Plan 19 Property Management Instructor Materials 20 Chapter 4: Developing a Management Plan 21 Property Management Instructor Materials 22 Chapter 4: Developing a Management Plan 23 Property Management Instructor Materials 24 Chapter 4: Developing a Management Plan 25 Property Management Instructor Materials 26 Chapter 4: Developing a Management Plan 27 Property Management Instructor Materials 28 Chapter 4: Developing a Management Plan 29 Property Management Instructor Materials 30 Chapter 4: Developing a Management Plan 31 Property Management Instructor Materials 32 Chapter 4: Developing a Management Plan 33 Property Management Instructor Materials 34 Chapter 4: Developing a Management Plan 35 Property Management Instructor Materials 36 Chapter 4: Developing a Management Plan 37 Property Management Instructor Materials 38 Chapter 4: Developing a Management Plan 39 Property Management Instructor Materials 40 Chapter 4: Developing a Management Plan 41 Property Management Instructor Materials 42 Chapter 4: Developing a Management Plan 43 Property Management Instructor Materials 44 Chapter 4: Developing a Management Plan 45 Property Management Instructor Materials 46 Chapter 4: Developing a Management Plan 47