How to Create an Accurate Building Budget

A calculator and pen sit on top of a building budget.

Too often, building boards are blindsided by big improvement projects. In these moments, an assessment is typically given to the owners. This isn’t always the best way forward. In order to prevent being hit with major costs out of the blue, it’s important to understand what’s going on in your building on a regular basis. We worked with Marsha Grant from Grant Management Services to provide you with the best tips on budgeting. In this blog post, we’ll give you insight into how to work with your management company to come up with an accurate building budget. We’ll also cover the line items that are often missing from building budgets that could save you money down the road.

Operating Expenses Are Key

One of the most important aspects of creating an accurate building budget is taking operating expenses into consideration well in advance. Rather than wait for unexpected issues to arise, it’s crucial to forecast costs and set realistic expectations for the year ahead. This means starting the process at least five months before the budget is due.

When it comes to projecting expenses, insurance costs can be difficult to estimate. To get an accurate picture, consider reaching out to an insurance broker to learn about next year’s costs. By factoring this information into your budget, you can ensure that your expenses are more realistic. When it comes to vendors, contracts should be reviewed for yearly increases. Some contracts can be re-bid for cost savings. We recommend getting at least three bids.

Many building owners believe that a condo / coop should operate at no surplus whatsoever. We disagree. Typically, accountants use a straight line depreciation method. This method involves taking the cost of equipment, dividing it by the number of years, and allocating the same amount for each year. While this is a great accounting tool, it doesn’t help the building properly save for future maintenance, which tends to increase. This is where a surplus comes into play. A surplus can be utilized to cover any maintenance fees that crop up. Therefore, it’s essential that the board, management, and accounting team are on the same page when considering the depreciation of the building equipment and infrastructure.

Building boards often think of assessments as a saving grace. However, as inflation rises and interest rates go up, assessments are only the best option if your ownership can afford it. If that’s not the case, you should consider working with consultants who can provide insight that will help you build a better budget.

Hiring the Right Help

During my tenure as treasurer for my building, I learned the hard way that it’s essential to plan for the maintenance and replacement of building equipment and infrastructure. In hindsight, I should’ve checked the Fannie Mae & IRS websites to understand the shelf life of the issues my building was having. These websites would have shown me that the end of life was approaching for our building equipment. I would have then known to hire a consultant and engineer to provide assessments on the equipment and facade depreciation, an evaluation of our roof and structural integrity, and information about the incentives available to our building at the City, State, and Federal level.

Highly rated, skilled consultants can provide you with a deeper analysis on the time span left on various systems. This will help you accurately budget and save for future maintenance. It’s important to note that once you have a written report from a consultant that states a deficiency that may be urgent, you need to act on it to prevent gross negligence. Once a board or property manager receives information on an issue, they have a responsibility to show ownership that they are moving forward with a solution. Green Potential can help you find the right vendors to get the job done quickly and for free.

Revenue: Not Just For Operating Costs

Revenue is a critical part of building budgeting. By accurately accounting for expected revenue, you can allocate resources effectively and prevent the need for assessments to owners. This means taking a comprehensive approach to budgeting that includes not only operating expenses, but also revenue streams and long-term planning. 

After working with a consultant to understand the longevity of your systems,  you can account for the resources that need to be set aside for maintenance and system replacements. As systems get older, they cost more to maintain. When you allocate for increasing HOA / maintenance costs, you not only prevent assessments to ownership, you also positively impact the long-term financial standing of your building. If your building cannot afford to increase HOA / maintenance costs, it’s important to hire consultants to analyze the various factors that may affect your building’s budget in the next 3-5 years. 

To better understand these factors, talk with your management company about bringing on additional support. If your management company or board needs additional vendor bids, we’re here to help at no cost to you. Green Potential is a matchmaker between vendors and buildings. We understand the types of projects consultants want to work on and provide proposals from among the best in the field. With each vendor recommendation, we include a cost analysis and reviews from previous clients on the quality of their work.

With the right approach, you can create an accurate building budget that sets your building up for long-term success. In a future post, we’ll explain how to work with banks to help your buildings’ reserves grow more efficiently.

3 Boiler Tips for Maintenance

Winter is here and with it building problems unique to the cold season. Many of the building owners we work with are currently experiencing issues with their boilers. Boiler issues are always frustrating, especially during winter. We talked to three boiler experts in our network to provide some helpful tips to our readers. Here’s what we learned from Mina at Agarabi Consulting, Mike at Demtroys, and Gregory at Rathe Associates:

Determine the Lifespan

Mike: The typical lifespan for a boiler ranges from 15-30 years. This is of course subjective to the type of boiler, the demand on the boiler, and ongoing maintenance.

You can measure your boiler’s lifespan by having a contractor come onsite to provide an analysis. As part of this analysis, they’ll inspect the fire and water side, which requires shutting down and opening up the boiler. It’s important that you find a trustworthy contractor/engineer who is not going to try and make money by selling you a new boiler.

Perform a Checklist

Mina: There are a vast array of checklists that are out there for building superintendents and maintenance experts to follow. Some are meant to be performed daily, others weekly. Understanding what type of boiler you have will help you better understand which checklist is most appropriate for your application. Note that every building is different and may require adding or removing items from the template checklist.

You can access a boiler checklist here. The checklist (on page 9.26) is essentially an overview of the different checks a contractor or building superintendent can perform on your boiler to help them understand where it stands in terms of performance and remaining life. When working with a contractor, it’s best if they complete some form of this checklist so you can keep a record. Ideally, your recording of the daily reading of the boiler water, make up meter, and the stack temperature when the burner is firing will tell you if you need to schedule a service call. Additionally, keeping track of the running cost of repairs made vs. cost of new equipment is beneficial. If your boiler needs replacing, we recommend starting a reserve fund to save up for the work of replacing the boiler or upgrading to HVAC.

Keep a Log

The checklist mentioned above needs to be logged somewhere. There are many tools that your management company can use in order to log this data. We at Green Potential can also help capture and store this data. You want to make sure the checklist is logged in a manner that it is easy to see day over day, week over week, year over year.

Gregory: Make sure that you’re gathering and logging data around the boiler and that someone is monitoring it regularly. By tracking how your system operates regularly, you have a better idea of when it is starting to run off the rails.  For instance, if your boiler system used to only run at half capacity on a 30F day, and now it runs at full capacity on that same temperature day, you may have issues you need to address. This helps you avoid emergencies, extends the life of your equipment, and generally will lower your operating costs.

Final Thoughts

Mina: Before doing anything (i.e. installing a monitoring / flow system, buying a new boiler, replacing different parts of your current system) – establish the end-use breakdown, benchmark the building and breakdown of O&M (operation & maintenance), and capital costs for the past 5 yrs or so.

Overall, you want to find a good technician who can help your building with their boiler maintenance schedule. Be careful not to put too much stock in some of these new monitoring technologies before making sure you fully understand your current system and its issues. Let us know if we can help in any way. Good luck!