When managing property investments, tracking and managing a number of important benchmarks is advisable to optimise long term financial performance. Suggested benchmarks and targets are: occupancy % (95% plus), expense ratio (30% and below), municipal recovery % (80% plus and ideally measured per municipal service), staff costs % (10% and below), maintenance expense ratio, variance to budget % (above 0%), net cash flow (above 0) and yield (12% plus). Effective financial management and reporting will be necessary to quantify the necessary benchmarks accurately and time efficiently, in conjunction with preparing standard financial reports such as a rent roll, performance to budget and variance report and a balance sheet. This information is essentially the management dash board for the financial performance of the property investment and asset class and the necessary time and attention should be applied to reviewing the reports, identifying material variances and addressing the variances actively. Property management interventions will be necessary to manage important benchmark variances, for example checking meters, tariffs and electrical systems if the electricity recovery is below expectations and a suggested 80% recovery benchmark (the remainder would be expenses attributable to the common property). Common issues which may negatively impact municipal and electricity recoveries in particular are faulty sub meters, geyser thermostats faulty or set too high, individual units drawing electricity from the common property and prolonged bulk meter estimates. Benchmark gaps therefore need to be investigated, defined and addressed.
Coupled with clearly defined financial targets and performance management, careful attention to facility management and proactive maintenance is very important to promote long term and consistent results. An effective on site building manager or caretaker is an important enabler for medium and large properties. Daily common property inspections (typically by the building manager), to identify maintenance issues, together with an efficient approach to address maintenance requirements quickly and cost effectively are essential. Facility management focused on security, cleaning, refuse removal and reactive maintenance are all client service priorities to ensure tenants remain happy and comfortable to reduce vacancies and rental payment issues over the long term.
Written by Andrew Schaefer (Managing Director)
