Managing reports and insurance
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This document discusses various reports and insurance considerations for property managers. It covers operating reports, financial reports including budget comparisons, income/expense reports and operating budgets. It also discusses cash flow statements, determining profitability through break-even analysis and rates of return. The document outlines important tax records and considerations for property managers. Finally, it discusses risk management, the property manager's role in claims, and common types of insurance policies.
Managing reports and insurance
- 1. MANAGING REPORTS AND INSURANCE Siti Hasniza Binti Rosman Universiti Teknologi MARA (UiTM)
- 2. Table of Content 1. Operating Reports 2. Financial Reports 3. Cash Flow Statement For Tax Purposes 4. Determining Profitability 5. Tax Records 6. Risk Management And Insurance 7. Types Of Insurance
- 3. Operating Reports The manager must set up a method of accounting for funds received and disbursed, keeping in mind the needs of the owner. The manager should never rely on memory to verify expenses. Written order should be issued for all purchases and purchase orders should be matched to incoming invoices before payment is made.
- 4. Financial Reports The manager needs to be familiar with three (3) different reports: 1. Budget comparison statement 2. Income and expense report 3. Operating budget
- 5. Budget comparison statement The budget comparison for the property compares the actual results with the original budget drawn up either at the beginning of that period or at the time the manager assumed responsibility for the property.
- 6. Income and expense report The report tells the owner the sources of income and expenses, net operating income and net cash flow. The manager’s monthly report on income and expenses is the single most important report and is usually accompanied by a note from the manager explaining any abnormal items.
- 7. Income and expense report Income Vacant rental units Support space (for example: the manager’s office or residence and maintenance or storage areas) Vacant space under major repair Expenses Wages paid to building personnel General operating expenses (such as utilities) Maintenance expenses Administrative costs
- 8. Income and expense report Gross Rental Income + Income From Other Sources – Losses Incurred = Total Income Total Income – Operating Expenses = Net Operating Income Before Debt Service Net Operating Income Before Debt Service – Debt Service – Reserves = Cash Flow
- 9. Income and expense report Profit and loss statement Gross Receipts – Operating Expenses – Total Mortgage Payment + Mortgage Loan Principal = Net Profit
- 10. Operating budget The budget gives the owner an idea of the cash yield to expect from the property during a fixed period, traditionally a year. The budget serves the manager as a guide for future operation of the property and as a measure of past performance.
- 11. Operating budget Estimate conservatively A sound general rule for the manager when preparing a budget forecast is to be conservative. It is preferable to use present rental rates for the estimates, rather than on anticipated increases in revenue.
- 12. Operating budget Prepare explanations If there is a decrease in the expected revenue, the manager should be prepared to explain why. The budget forecast should make allowances for vacancies and delinquent payments during the period to be covered. Occupancy rate 95%.
- 13. Operating budget Examine discrepancies When forecasting expenses for the new budget term, the manager should examine all discrepancies between anticipated costs as projected in the budget for the preceding year, and actual expenses incurred as shown on the income and expense reports from the same period.
- 14. Cash Flow Statement For Tax Purposes Depreciation For tax purposes, only depreciation from physical deterioration is deductible from the property’s income. After-Tax Cash Flow Once the appropriate rate of depreciation has been determined and the allowable deduction computed, the depreciation allowance is subtracted from the total net income from the property for the year.
- 15. Determining Profitability 1. Break-even analysis 2. Return on investment 3. Capitalization rate
- 16. Break-even analysis The primary method of calculating the profitability of a building is to determine its break-even point, the percentage of occupancy at which gross income is equal to fixed expenses. When gross income exceeds the break-even point, the project will begin to be profitable.
- 17. Break-even analysis The formula for calculating a property’s break- even point is as follow: BE = FC 100 - VCR BE = Break-even point FC = Fixed costs (including mortgage payments) VCR = Variable costs ratio
- 18. Return on investment Return on investment (ROI), another measure of profitability, is the ratio of the property’s net income after taxes to the money invested in the property (equity). The formula for calculating ROI is as follow: ROI = ATCF ÷ E × 100% ATCF = After-tax cash flow EQUITY = Equity ROI = Return on investment
- 19. Capitalization rate The capitalization rate is another index of the profit on a particular property. An astute investor buys an investment property that has a projected net operating income (NOI). The formula for calculating ROI is as follow: R = I + V × 100 R = Capitalization I = Net operating income before debt service V = Value of property
- 20. Tax Records Property managers should obtain the latest circulars and copies of state and local tax regulations and consult with competent tax counsel before filing any tax returns. The property manager does not need to be an expert in tax law, he or she should be familiar with the purpose of the various forms.
- 21. Tax Records Employee documentation Employer identification number Employee’s withholding allowance certificate Employment Eligibility Verification State obligations Free rent Disability and workers’ compensation Statement of miscellaneous income Unemployment taxes
- 22. Risk Management & Insurance The property manager should have a working knowledge of casualty, liability & special lines of insurance and an understanding of the whole insurance field its theories, principle and practices.
- 23. Risk Management & Insurance RiskManagement Theories 1)Identifying the risk & measuring its frequency and financial severity 2)Avoiding the risk or discounting the loss-causing activity 3)Controlling the risk with safety programs, loss reduction plans and emergency preparedness 4)Retaining the risk & internally funding loss consequences 5)Transferring the risk to insurers or to third parties 6)Monitoring the results and ongoing fit of the risk management strategies implemented.
- 24. Property Manager As A Claim Adjuster The property manager will be responsible for arranging preservation of the property & later negotiating with insurance company representations.
- 25. Types of Insurance 1) Standard fire insurance 2) Replacement cost insurance 3) Machinery and equipment insurance 4) Loss of income insurance 5) Pollution liabilities insurance 6) Workers compensation insurance 7) Employer liability insurance
- 26. Policy Content 1) The insurance agreement 2) Policy exclusions, limitation & reduction 3) Policy condition & warranties 4) Policy territory & reduction
- 27. THE END