Unit 2 Property Management.docx

UNIT 2 **I Feasibility of Property\ Management** LEARNING OBJECTIVES - - - KEYTERMS OVERVIEW five-year forecast gross collectible rental income management plan market analysis neighborhood analysis operating budget operating costs optimum price optimum rent property analysis regiona...

UNIT 2 **I Feasibility of Property\ Management** LEARNING OBJECTIVES - - - KEYTERMS OVERVIEW five-year forecast gross collectible rental income management plan market analysis neighborhood analysis operating budget operating costs optimum price optimum rent property analysis regional market analysis reserve funds technical oversupply 21 22 Unit 2 Feasibility of Property Management THE REAL ESTATE ECONOMY THE GENERAL BUSINESS ECONOMY Seasonal Variations ECONOMIC ACTIVITY Unit 2 Feasibility of Property Management **23** Cyclic Fluctuations 1. 2. 3. 4. Figure 2.1: The Business Cycle Expansion Recession 24 Unit 2 Feasibility of Property Management Contraction Revival Lull Long-Term Movements Unit 2 Feasibility of Property Management **25**  Random Changes 26 Unit 2 Feasibility of Property Management Government Influences THE REAL ESTATE ECONOMY Factors Affecting the Value of Real Estate *0* Unit 2 Feasibility of Property Management **27** The Rental Market 28 Unit 2 Feasibility of Property Management THE MANAGEMENT PLAN Figure 2.2: Management Plan Input Financial Planning Reports Unit 2 Feasibility of Property Management **29** Information Required to Formulate Financial Reports Optimum rents 30 Unit 2 Feasibility of Property Management Gross rental income Total anticipated revenue Operating costs Unit 2 Feasibility of Property Management **31** Reserve funds  Cash flow Operating Budget 32 Unit 2 Feasibility of Property Management Figure 2.3: Annual Operating Budget +-----------------+-----------------+-----------------+-----------------+ | **Income** | | \$ 19,800 | | | | | | | | | | 50,400 | | | | | | | | | | 30,600 | | +-----------------+-----------------+-----------------+-----------------+ | | | 100,800 | | | | | | | | | | -5,000 | | +-----------------+-----------------+-----------------+-----------------+ | | | 95,800 | | | | | | | | | | 3,500 | | +-----------------+-----------------+-----------------+-----------------+ | | | | | +-----------------+-----------------+-----------------+-----------------+ | **Expenses** | | | | +-----------------+-----------------+-----------------+-----------------+ | | | \$11,900 | | +-----------------+-----------------+-----------------+-----------------+ | | | 18,800 | | +-----------------+-----------------+-----------------+-----------------+ | | | 5,200 | | +-----------------+-----------------+-----------------+-----------------+ | | | 700 | | +-----------------+-----------------+-----------------+-----------------+ | | | 3,500 | | +-----------------+-----------------+-----------------+-----------------+ | | | 1,500 | | +-----------------+-----------------+-----------------+-----------------+ | | | 1,200 | | +-----------------+-----------------+-----------------+-----------------+ | | | 5,700 | | +-----------------+-----------------+-----------------+-----------------+ | | | 1,300 | | +-----------------+-----------------+-----------------+-----------------+ | | | | | +-----------------+-----------------+-----------------+-----------------+ | | | | | +-----------------+-----------------+-----------------+-----------------+ | **Net Operating | | | | | Income Before | | | | | Debt Service** | | | | +-----------------+-----------------+-----------------+-----------------+ | **Debt | | | | | Service** | | | | +-----------------+-----------------+-----------------+-----------------+ | | | 23,200 | | +-----------------+-----------------+-----------------+-----------------+ | **Cash Flow** | | | | +-----------------+-----------------+-----------------+-----------------+ Five-Year Forecast Unit 2 Feasibility of Property Management **33** Figure 2.4: Five-Year Forecast.4 A B ' C 6 I „ LQ K_J 1 Ffve-Vear Forecast ; ' 2 ''Base..'. -12od'Yearl rf 3i4 Yeix - 4thviar s f BtbYear 3' Xiner * ♦ Amt xtocr ♦ Amt' Xlncr,' ♦ Amt Xlnox '♦'Ant? Xtnor ♦ Amt.4 Income j 3stuto®*550 *8.800 taoxi *21800 5.0X 822300 50k| *24.000 5.0K *29200 8ox: *27.700 6 $ one-bedroom © ittOOftnoMh 72.000 to. ok! 79200 90X 82200 50K| 87.400 90K' 91800 100K nioco 7 3t*o-bedroom © *H00froooth 50.400 aoxj 55.400 wok; 80000 sok! 69900 5.0K; 67,100 I0.0K 79800 9 Gbo* s scheduled itnul income 142200 r “ I 156.400 187000.. ! 179300 - i m.no : 202500 to Less 5k vacaoej and tent loss 7,100 SiOSS! 7,800 90X1 9.400 5.0K! 8000 5.0K 9200 SOK 10.100 Gross eoBeetWe rental Income B5.no r -f- 148000 *. 152600 r- " —r 186500 " i 174.900 192400 12 Income from other sources 5,100 5uC«! 6.400 5.0K 5.700 90x! 0000 5.0K 9300 5J3K 2800 13; Total anticipated Income *140200 $*5jj *154000 *184000 5-Oxf *172500 5.0*1 9181200 9.8K *199.000 M_ Expenses ! j j | 15 Bed estate uses *8500 7.0K *8000 80X 822800 90X; *29900 90K! *29t00 SjOK1 *28.400 16 [Salaries 32.000 7.0A 34.200 40K^ 35.800 4.0x! 37000 4.0K 39500 4.0K 40000 17 jUffilies 9.300 90X1 10000 80X *3000 80K 11700 60K 12800 8jOK 13.600 is. iSuppfc* 2.100 too*/. 2300 OOK 2500 80x1 2800 W.0X; 3.100 tOOK 2400 19 Maintenance and repairs 7j000 taoxi 7.700 50K 8.100 noKj 9300 8J3K 9600 OOK 8.400 20 [insurance 4,000 mr. 4.800 wok; 5,80 lOOXi 5000 10.0K 6200 W.0K 6800 21 Administrative 2000 SOCK sok; 4.400 80k 4.800 ook! 9200 60K 9800 n Management © 6K gross income (feed) 0,100 OOKi 8.800 6.0K 9100 60k; 9000 60k 10200 60K 8.800 23 Reserves 2000 taox 2200 tOOK 2400 tOOK; 2800 10.0K 2900 iook 9200 24 Total budgeted expenses *85000 i *93000 : 8100,800 j *108000 ! 8tt2400 ! *1201200 25 Net Operating (acorn* Before Debt 8* *54000 102Xj *60000 50K' 869500 30k; *89800 *67.800 *79800 26 Debt Service *38.000@5K *81500 | filtd *15500 *8000 *8000 ♦8500 ♦8500 27 Cash Flow *39.400 f t42x *45000 *49000 ♦50.no *52300 *69300 29 — 30..... j Comparative Income and Expense Analysis 34 Unit 2 Feasibility of Property Management Figure 2.5: Comparative Income and Expense Analysis +-----------------------+-----------------------+-----------------------+ | | **Property** | | | | | | | | **As Is** | | +-----------------------+-----------------------+-----------------------+ | | | | +-----------------------+-----------------------+-----------------------+ | | \$41,000 | \$47,500 | +-----------------------+-----------------------+-----------------------+ | | 2.000 | 4.000 | +-----------------------+-----------------------+-----------------------+ | | \$43,000 | \$51,500 | +-----------------------+-----------------------+-----------------------+ | | \$5,000 | \$5,000 | +-----------------------+-----------------------+-----------------------+ | | 8,500 | 8,500 | +-----------------------+-----------------------+-----------------------+ | | 4,000 | 4,500 | +-----------------------+-----------------------+-----------------------+ | | 500 | 500 | +-----------------------+-----------------------+-----------------------+ | | 1,500 | 1,500 | +-----------------------+-----------------------+-----------------------+ | | 500 | 500 | +-----------------------+-----------------------+-----------------------+ | | 200 | 200 | +-----------------------+-----------------------+-----------------------+ | | 2,500 | 3,000 | +-----------------------+-----------------------+-----------------------+ | | 300 | 300 | +-----------------------+-----------------------+-----------------------+ | | \$23,000 | \$24,000 | +-----------------------+-----------------------+-----------------------+ | | \$20,000 | \$27,500 | +-----------------------+-----------------------+-----------------------+ | | \$9,000 | \$9,000 | +-----------------------+-----------------------+-----------------------+ | | \$11,000 | \$18,500 | +-----------------------+-----------------------+-----------------------+ | | | | +-----------------------+-----------------------+-----------------------+ Unit 2 Feasibility of Property Management **35** PRESENTING THE PLAN MARKET ANALYSIS 36 Unit 2 Feasibility of Property Management Regional Market Analysis Neighborhood Market Analysis Boundaries and land usage Unit 2 Feasibility of Property Management **37** Local building codes and regulations Transportation and utilities 38 Unit 2 Feasibility of Property Management Economy Supply and demand Unit 2 Feasibility of Property Management **39** Neighborhood amenities and facilities Evaluating the Data 40 Unit 2 Feasibility of Property Management PROPERTY ANALYSIS - - - - Leases Physical Condition of the Premises Unit 2 Feasibility of Property Management **41** Exterior Interior Equipment Health or safety hazards 42 Unit 2 Feasibility of Property Management Evaluating Comparables Operating costs Capital improvement Unit 2 Feasibility of Property Management **43** KEY POINT REVIEW 44 Unit 2 Feasibility of Property Management 1. 2. 3. UNIT 2 EXAM 1. Which of the following characterizes the expansion phase in the business cycle? A. B. C. D. 2. At or just before the peak of the general business cycle, A. B. C. D. 3. Movements of the general economy that usually are measured over 50 years or more are called A. B. C. D. 4. Cycles of the general business economy differ from those of the real estate market in that the A. B. C. D. 5. In the operating budget, what is the name of the expenditure that accounts for money for replacement expenditures? A. B. C. D. 6. A. B. C. D. 7. A. B. C. D. 8. A. B. C. D. 9. A. B. C. D. 10. A. B. C. D. 45 **46** Unit 2 Feasibilty of Property Management 11. A. B. C. D. 12. A. B. C. D. 13. A. B. C. D. 14. After inspecting and analyzing the comparables, a A. B. C. D. 15. A good management plan is based on A. B. C. D.