Maximizing your Budget
I have worked with very few clients that look forward to budget season. It is one of the many traditions that unite all owner/management companies across the country. Most companies start in late summer and try to finalize by the end of October. I have seen some creative efforts by client companies, such as “budget retreats” or other workshop-type events aimed at taking some of the monotony out of the process while educating employee partners on the key factors to consider when setting budgets for the year ahead. The current economic environment can add to the stress of the budget season.
According to Forbes, 2023 brings a different flavor of uncertainty due to global unrest, supply chain instability, and soaring inflation, pointing to an economic slowdown. (Leaver, 2022). An NAA study found that Total Revenue, measured as a percent of Gross Potential Rent (GPR), fell nearly 200 basis points from the prior year while operating expenses rose 60. This resulted in a 3.3% loss in year-over-year Net Operating Income (NOI) per unit, the first decrease since 2010 in the aftermath of the Great Recession. (National Apartment Association, 2021). At the same time, utility costs have risen by 35% in the past few years, and projections for 2023 expect another 12% to 62% hike depending on the market. (NAA, 2022)
Given these factors, it is even more critical than in previous years to re-evaluate your company's utility management solutions. Are you using a utility solution that is effectively auditing your monthly utility bills, or are you relying on in-house teams to review utility bills for accuracy? About 17% of all utility invoices contain an error of some sort. (Energyprint, 2021) Due to the high rate of errors in utility billing, your utility invoices must be audited every month before payment. Utilizing a company like Southwest Utility Solutions to audit and process every vendor utility bill can ensure that trained eyes are auditing your statements, clearly communicating with your accounting/onsite teams, and seeking resolutions from your utility vendors on your behalf. This not only saves potentially hundreds of thousands of dollars lost due to utility billing errors, but it also helps identify issues like leaks or broken master meters and reduces the payroll expenses involving the personnel needed to review bills and work with utility companies to seek a resolution. Your utility management solution should also be aggressively monitoring for utility bills that should be in your resident’s name, but you are receiving the invoice. Regulations allow these charges to be billed back to your residents with an additional fee (usually around $50) for each invoice not in their name as required by their lease.
Reviewing the methods used to recover your utility expenses is also critical in uncertain times. Are your communities billing utilities back to the resident on a flat-rate basis, or are you utilizing a submeter or allocation method? Suppose you are billing utilities back on a flat rate method. In that case, you do not only risk under recovering as utility rates increase at record levels, but you also miss out on the conservation benefits/cost reductions that sub-metered or allocation billing can provide you and your residents. Fannie Mae researched owners paying for all energy costs and found that median annual energy usage was 26% higher than when residents paid for their energy costs. (Fannie Mae, 2014) Reviewing current utility billing solutions to ensure all eligible line items are being accurately billed back to your residents is also essential. It should be reviewed at a minimum on an annual basis. In my career, I have often seen multiple recoverable line items omitted from what is being billed back to your residents, which can lead to an excessive and avoidable financial burden.
A review of the ancillary fees, such as trash and pest charges, is also essential. Have you checked your recovery recently to determine if your flat rates are covering the expense you are currently paying? Have you considered allocating these charges to protect your recovery from the regular rate increases you are paying? An experienced billing partner can assist you in reviewing these on an annual or bi-annual basis to ensure the charges you are passing to your residents are sufficient to recover the costs you are paying.
Have you re-evaluated your billing/service fees recently? One of the most significant ways to positively impact your property income is to frequently evaluate the fees you are charging, what can be set, and how these compare to how other communities in your market are billing fees to their residents.
Finally, budget season is a great time to reflect on the quality and service you are receiving from your current utility management solution. Do they make serving you and bringing value to your communities a priority? How much workforce are your corporate and community level team members dedicating to services they should provide? The monetary expense of a poor service partnership is often overlooked.
Southwest Utility Solutions has experts available to meet with you and review your current utility management and resident billing solutions. We are experts in getting to know the companies/communities we partner with and working together to find the best solution for each of your communities to reduce your consumption and increase your recovery.
Energyprint. (2021, October 12). 5 Things To Look For In A Utility Bill Audit. Retrieved from Energyprint: https://www.energyprint.com/resources/5-things-to-look-for-in-a-utility-bill-audit/
Fannie Mae. (2014, September). TRANSFORMING MULTIFAMILY HOUSING: FANNIE MAE’S GREEN INITIATIVE AND ENERGY STAR® FOR MULTIFAMILY. Retrieved from Fannie Mae: chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://multifamily.fanniemae.com/media/6656/display
Leaver, S. (2022, September 27). What are the keys to 2023 planning amid uncertainty? Discipline and Precision. . Retrieved from Forbes: Leaver
NAA. (2022, September 12). Boosting Property Value Through Water and Energy Efficiency. Retrieved from NAA: https://www.naahq.org/boosting-property-value-through-water-and-energy-efficiency
National Apartment Association. (2021, October 20). National Apartment Association 2021 Survey Of Operating Income & Expenses In Rental Apartment Communities. Retrieved from NAA: https://www.naahq.org/national-apartment-association-2021-survey-operating-income-expenses-rental-apartment-communities