Income, budget and balance sheet 60 multiple choice , 3 hours timed, open book 1 Course Presentation Certified Financial Specialist Teach feder

Income, budget and balance sheet
60 multiple choice , 3 hours timed, open book

1

Don't use plagiarized sources. Get Your Custom Assignment on
Income, budget and balance sheet 60 multiple choice , 3 hours timed, open book 1 Course Presentation Certified Financial Specialist Teach feder
From as Little as $13/Page

Course Presentation

Certified Financial
Specialist

Teach federal regulations and guidance for housing
programs providing NCHMs interpretation of both

Provide examples of policies and procedures used in the
industry

Provide the instructors opinion on how to handle specific
situations

Do not give legal advice or set policy for your owner or
management company

NCHM Courses and Instructors

Disclaimer

2

1

2

2

Course: Certified Financial Specialist
2020 National Center for Housing Management

Instructor Introduction

5

Instructor

Course: Certified Financial Specialist
2020 National Center for Housing Management 6

Course Materials

2018 National Center for Housing Management

CFS Course Book

Presentation Slides

T
a

b
1

Exercises

T
a

b
2

Reference Material
and SpreadsheetsTa

b
3

HUD Documents

Ta
b

4

5

6

3

Course: Certified Financial Specialist
2020 National Center for Housing Management

Certification Exam
Dont panic

7

Course: Certified Financial Specialist
2020 National Center for Housing Management

*CFS is relevant to any type of multi-family
rental property, be it affordable or market-rate

(although we will discuss some of the differences).

8

About the Program

Part 1 Part 2

Course Organization

7

8

4

Course: Certified Financial Specialist
2020 National Center for Housing Management

By the end of Part 1 we hope you will learn:

What truly are the financial goals of

apartment ownership

The basics of property-level accounting

and financial management

The structure and purpose of different

financial statements

Objectives

How to analyze financial statements;

quickly zeroing in on the numbers that

matter

How to better understand your own

financial statements and make better

decisions

Why good budgeting is so important!

9

The Financial Goals
of Ownership

9

10

5

Course: Certified Financial Specialist
2020 National Center for Housing Management

Financial Goals of Ownership

Important to understand

goals of ownership

Goals are financial and

non-financial

Different owners have

different goals

To get us started, please do Exercise
#1, Part A only, Tab 2, Page #1

11

Course: Certified Financial Specialist
2020 National Center for Housing Management

All owners essentially
chooses from the same
menu:

Cash flow

Appreciation of Value

Preservation/Growth of

Equity

Tax Benefits.
and a related goal:
Preservation of the Asset

12

11

12

6

Course: Certified Financial Specialist
2020 National Center for Housing Management

CASH FLOW/NET CASH

Monthly/Annual net income
flowing to the bottom-line

APPRECIATION

Increase in the fair market value
of the property over time

Financial Goals – Definitions

PRESERVATION/GROWTH OF EQUITY

Protection and growth of the net
value of the asset (the owners
equity portion)

TAX BENEFITS

Improved financial return by
taking advantage of certain
income tax breaks

The above combine to result in Return on Investment

13

Course: Certified Financial Specialist
2020 National Center for Housing Management 14

What if the owner is a non-profit or housing authority?
Does it still have these goals?

Is it still concerned with Return on Investment?

13

14

7

Course: Certified Financial Specialist
2020 National Center for Housing Management

Preservation of the Asset

Goal – Ensure that the property continues to be a viable

asset in the future so that it will continue to meet the

owners financial and non-financial objectives

Isn’t a direct financial goal; cant be measured by one

factor as the others can

Recognizes that the physical condition of the property

also matters

Management preserves the asset by making wise

decisions in the core areas of operation

Generally, slum landlords arent interested in preservation of assets!

15

Course: Certified Financial Specialist
2020 National Center for Housing Management

Initially, when the project is underwritten

(that is, when it is first financed or last re-financed)

Assumptions are made and goals established, such as:

Income and expense assumptions (A pro forma

budget)

Expectations with respect to the amount of cash flow

and the expected Return on investment (ROI)

Return on Investment = The total financial return
to the owners taking into consideration, annual
cash flow, the projected gain on sale, and any
applicable tax benefits. Usually expressed as a
% of the owners equity.

How and when are financial goals established?

16

15

16

8

Course: Certified Financial Specialist
2020 National Center for Housing Management

Most projects are financed with a combination of debt and

equity

The details of the project financing are driven by the

requirements of the particular loan program (e.g. HUD, FHA,

private lender, etc.)

Replacement reserve requirements

Interest rates and terms of debt

Debt service coverage

Cap rate assumptions

Etc.

Loan Programs Dictate Most Parameters of the Financing

17

Course: Certified Financial Specialist
2020 National Center for Housing Management

Financial Goals

Identifies the value of the business

It tells me what the NOI is worth

Therefore

It is important to have an accurate NOI

Classifying expenses correctly

CAPITALIZATION RATE =
NET OPERATING INCOME

PURCHASE PRICE

Why is the Cap rate so important?

18

17

18

9

Course: Certified Financial Specialist
2020 National Center for Housing Management

How the property was structured financially

when it was built or at its last re-finance/purchase

How it has been operated since, and,

The current goals of the owner.

Management Has to Play the Cards That Were Dealt to It

Understanding these, helps you form
operating expectations that are reasonable
and achievable.

19

Course: Certified Financial Specialist
2020 National Center for Housing Management

Owner Goals

Based on what you have learned, what, if any, questions
do you have regarding your owners financial goals?

Are there specific cash flow expectations for the property?

Are there any special loan requirements, such as Debt Service

Coverage requirements, that management should know about?

Any there targets for replacement reserve balances, capital

expenditures, etc.?

Turn to Tab 2, Page 1 and
complete Exercise #1, Part B

20

19

20

10

Basic Financial
Statements

21

Course: Certified Financial Specialist
2020 National Center for Housing Management

Before we dive in Whats a Fiscal Year?

FISCAL YEAR

12-month period for financial purposes; it may or
may not be the same as a calendar year (January
to December)

In this program and on Exam
everything is calendar year

APRIL 1ST MARCH 31STTO

OCTOBER 1ST SEPTEMBER 30THTO

22

21

22

11

Course: Certified Financial Specialist
2020 National Center for Housing Management

They are (or should be):

1) The way we track how the property is performing

with respect to its financial goals, and

2) Tools that help us make better operational decisions.

Financial statements are more
than just reports on bookkeeping

To have them become this, we need to
unlock their power! And we do that
through knowledge and understanding.

23

Course: Certified Financial Specialist
2020 National Center for Housing Management

The Two Basic Statements

Income & Expense
Statement

Income the property

receives

Operating expenses of

the property

Difference between

income and expenses

Referred to as Net

Operating Income

Balance Sheet

Assets

liabilities of the property

Difference between

assets and liabilities –

often referred to as

Equity.

24

23

24

12

Course: Certified Financial Specialist
2020 National Center for Housing Management

Basic Statements in Plain English

Income

Subtotal $4,100

Pay from F/T job $3,400

Pay from P/T job $700

Expenses

Rent $1,050

Student loan $350

Car payment $400

All other day to day

expenses

$1,900

Subtotal $3,700

Net Income $400

Cindys Income & Expense Statement

INCOME SUBTOTAL

– EXPENSES SUBTOTAL

NET INCOME

25

Course: Certified Financial Specialist
2020 National Center for Housing Management

How is Cindy doing?

Shes doing okay financially

Shes not doing so good financially

I dont have enough information to decide.

Basic Statements in Plain English

Q

a

b

c

26

25

26

13

Course: Certified Financial Specialist
2020 National Center for Housing Management

Assets

Subtotal $22,500

Checking and savings $1,000

401k $4,000

Liabilities

Student loan $25,000

Car loan $18,000

Credit card debt $6,500

Subtotal $49,500

Net Worth (Equity) -$27,000

Cindys Balance Sheet

TOTAL ASSETS

– TOTAL LIABILITIES

NET WORTH

Car $17,000

27

Course: Certified Financial Specialist
2020 National Center for Housing Management

Now, how is Cindy doing?

Like I said, shes doing okay

Like I said, shes not doing so good

I still dont have enough information to decide.

Q

a

b

c

Ive changed my mind.d

28

27

28

14

Course: Certified Financial Specialist
2020 National Center for Housing Management

We need both statements to better

understand Cindys financial situation

One gives us a picture of her day-to-

day situation; the other helps us see

the big picture

And, as well see, we need to combine the
two statements to understand the financial
situation of an apartment community.

Key Takeaways

29

The Balance Sheet

30

29

30

15

Course: Certified Financial Specialist
2020 National Center for Housing Management

See Tab 3, page 1
Course: Certified Financial Specialist
2020 National Center for Housing Management 31

Course: Certified Financial Specialist
2020 National Center for Housing Management

Caution: Dont
mistake for
market value!

Course: Certified Financial Specialist
2020 National Center for Housing Management 32

31

32

16

Course: Certified Financial Specialist
2020 National Center for Housing Management

Course: Certified Financial Specialist
2020 National Center for Housing Management

Liabilities

33

Course: Certified Financial Specialist
2020 National Center for Housing Management

See Supplemental Definitions in Tab #3 for more detail
Course: Certified Financial Specialist
2020 National Center for Housing Management

Other Balance
Sheet items we
will only mention
briefly; not topics
on Exam

Accumulated
Depreciation

Retained
Earnings

34

33

34

17

Methods of Accounting

35

Course: Certified Financial Specialist
2020 National Center for Housing Management

Is your propertys income and expense statement
on a cash basis, an accrual basis or something else?

Cash

Accural

Something else

Q

a

b

c

I dont knowd

36

35

36

18

Course: Certified Financial Specialist
2020 National Center for Housing Management

Cash vs. Accrual Methods

Cash Method

Income and expenses

are posted (i.e., record on

the books) as of the date

they are received or paid,

respectively

Accrual Method

Income and expenses are

poste to the period to which

they apply:

For income, the period the

income was earned (whether

received or not)

For expenses, the period for

which the expense applies

(whether paid or not)

37

Course: Certified Financial Specialist
2020 National Center for Housing Management

In Plain English

Income Mar Apr May

Ms. Green $675

Mr. Calico $600

Ms. Blue $700

Total Income (Apr) $675

Accrual MethodCash Method

Income Mar Apr May

Ms. Green $675

Mr. Calico $600

Ms. Blue $700

Total Income (Apr) $675

Expense Mar Apr May

Education $195

Electric $950

Lawn Care $600

Total Expense

(Apr)
$195

Expense Mar Apr May

Education $195

Electric $950

Lawn care $600

Total Expense

(Apr)
$1,745

Mar Apr May

Net Income (Apr) $480

Mar Apr May

Net Income (Apr) $230

38

37

38

19

Course: Certified Financial Specialist
2020 National Center for Housing Management

Cash vs. Accrual

Turn to Tab 2, Pages 2-3
and complete Exercise #2

39

Course: Certified Financial Specialist
2020 National Center for Housing Management

Answers to Exercise #2

Income Oct Nov Dec

Ms. Gilder $950

Mr. Kim $975

Mr. Perez $975

Total Income (Nov) $975

Accrual MethodCash Method

Income Oct Nov Dec

Ms. Gilder $950

Mr. Kim $975

Mr. Perez $975

Total Income (Nov) $2,900

Expense Oct Nov Dec

Snow Removal $1,000

Plumbing $245

Supplies $445

Total Expense

(Nov)
$690

Expense Oct Nov Dec

Snow Removal $1,000

Plumbing $245

Supplies $445

Total Expense

(Nov)
$1,245

Oct Nov Dec

Net Income (Nov) $285

Oct Nov Dec

Net Income (Nov) $1,655

40

39

40

20

Course: Certified Financial Specialist
2020 National Center for Housing Management

February snow removal service paid in August

Why Accrual?

FEB MAR MAY JUN JUL AUGAPR

EXPENSES
More accurately reflects the situation

INCOME
More accurately reflects income

earned for the period (but need to

know accounts receivables)

NET OPERATING INCOME
More accurately reflects

operations that month

41

The Income and
Expense Statement

42

41

42

21

Course: Certified Financial Specialist
2020 National Center for Housing Management

Income & Expense
Statement

Income the property receives

Operating Expenses of the

property

Difference between income and

expenses

Referred to as Net

Operating Income (NOI)

43

Course: Certified Financial Specialist
2020 National Center for Housing Management

Lets look at an example: Tab 3, pages 3-4 (Northfield)

Not all statements are alike!

THEY CAN GO BY DIFFERENT NAMES:

Income statement

Operating statement

Profit and loss statement

Monthly variance report

CAN BE FORMATTED DIFFERENTLY,
BUT USUALLY CONTAIN:

Name of Property

Name of Report

Period of Time Covered

Book Type (sometimes)

Time Stamp

CAN PRESENT DIFFERENT TYPES OF
INFORMATION SUCH AS:

Actuals only

Actual vs. Budget

Actual vs. Budget plus Variance

Most common
and preferred

44

43

44

22

Course: Certified Financial Specialist
2020 National Center for Housing Management

Used to make bookkeeping and accounting easier

Most affordable properties follow HUD Chart of Accounts

HUD Chart of Accounts is more than 100 accounts!

Only use those accounts that are relevant

Can customize charts of accounts as long as formal reports

conform to requirements

Market-rate properties can adopt any chart of accounts,

though most use something similar to HUD

What are those numbers?

CHART OF ACCOUNTS

A list of numbers and
descriptions for each line item

45

Course: Certified Financial Specialist
2020 National Center for Housing Management

The Income & Expense Statement

What are not operating expenses?

Outlays of money reported on the balance sheet

For example:

Capital Expenditures

Reserve for Replacement deposits

NET OPERATING INCOME:

INCOME OPERATING EXPENSES

Well discuss these outlays later

46

45

46

23

Course: Certified Financial Specialist
2020 National Center for Housing Management

Net Operating Income

Well see how an income and expense statement is modified
to give us the information we need to get to the bottom-line
but for now lets drill down on NOI.

River Bend Apartments had NOI of $400,000
last year. How is the property doing?

Its doing okay financially

Its not doing so good financially

I dont have enough information to decide

Q

a

b

c

47

Course: Certified Financial Specialist
2020 National Center for Housing Management

Lets Drill Down on the Income and
Expense Statement starting with income

48

47

48

24

Course: Certified Financial Specialist
2020 National Center for Housing Management

Full Income & Expense
Statement for Northfield
is in Tab 3, Pages 3-4

Course: Certified Financial Specialist
2020 National Center for Housing Management 49

Course: Certified Financial Specialist
2020 National Center for Housing Management

Rental Income

Gross Potential Rent

Rent

Subsidy (if any)

Adjustments to GPR (+)

Loss to Lease

Incentives

Vacancy

Bad Debt/Recovery

+ Non Rental (or Other) Income

Total Income

Total Rental Income

Income
(also known as Revenues)

50

49

50

25

Course: Certified Financial Specialist
2020 National Center for Housing Management

20 unit property

All 1 bedrooms

Budgeted rents:

$800/month

Monthly GPR

$16,000

12 months
Monthly GPR

$16,000

Annual GPR

$192,000

MONTHLY GROSS POTENTIAL RENT

ANNUAL GROSS POTENTIAL RENT (for same property)

Gross Potential Rent
The budgeted rent for a given period of time

51

Course: Certified Financial Specialist
2020 National Center for Housing Management

Gross Potential Rent

In market rate properties = The rent we planned to get for

a given unit (or unit type) when the budget was prepared

(sometimes referred to as the asking rent, although that

can be misleading)

In HUD Section 8 project-based properties = Contract Rents

In Tax Credit properties = Maximum (or Max) Tax Credit

Rent (or lower if market dictates).

52

51

52

26

Course: Certified Financial Specialist
2020 National Center for Housing Management

Rental Income: Subsidy

If a property receives

direct rent subsidies from

any governmental rental

housing program it is a

part of Gross Potential

Rent.

53

Course: Certified Financial Specialist
2020 National Center for Housing Management

Rental Income Adjustments

Rent concessions

One month free rent

$25 off first three months rent

Non-rent incentives

Free parking for 6 months

Reduced security deposit

Improvement to apartment

(e.g. ceiling fans, new carpet, etc.).

Incentives (or Concessions)
A discount or other item of value given to
entice someone to sign or renew a lease

Usually only
these tracked on
incentives line

54

53

54

27

Course: Certified Financial Specialist
2020 National Center for Housing Management

Rental Income Adjustments

Concept not used by all properties; more common in market-rate

Unit No. 501 Jan Feb Mar Apr May

Budgeted $1,000 $1,000 $1,000 $1,050 $1,050

Actual $950 $950 $950 $950 Vacant

Loss to Lease (LTL) -$50 -$50 -$50 -$100 $0

Complete Exercise #3 at
top of Page 4 of Tab 2

Loss to Lease
Difference between budgeted
rent and actual rent achieved

55

Course: Certified Financial Specialist
2020 National Center for Housing Management

Unit No. 45 Jan Feb Mar Apr May

Budgeted $950 $950 $975 $975 $1,000

Actual $925 $925 $925 Vacant $1,050

Loss to Lease (LTL) -$25 -$25 -$50 $0 +$50

Answers to Exercise #3

56

55

56

28

Course: Certified Financial Specialist
2020 National Center for Housing Management

Rental Income Adjustments: Vacancy

VACANCY LOSS
Rental income (in dollars) lost
due to vacant units

PHYSICAL VACANCY RATE
Number of vacant units divided
by number of total units

ECONOMIC VACANCY RATE
Rental income (in dollars) lost
divided by GPR.

57

Course: Certified Financial Specialist
2020 National Center for Housing Management

Turn to Tab #2, Page #4
and do Exercise #4 (a) and (b)

Exercise #4: Vacancy Loss

58

57

58

29

Course: Certified Financial Specialist
2020 National Center for Housing Management

Unit No. Days Vacant Rent per Day Rent Loss

102 23 $30

219 5 $35

220 12 $35

341 17 $32

412 13 $31

501 21 $30

623 30 $36

TOTAL

(a) Physical Vacancy Rate: 10 units 120 units = 8.3%

(b) Economic Vacancy Rate: $3,942 $108,000 GPR = 3.7%

$690

$175

$420

$544

$403

$630

$1,080

$3,942

Answers to Exercise #4

Which is more accurate:
physical or economic?

59

Course: Certified Financial Specialist
2020 National Center for Housing Management

Typically rent owed by residents that have

vacated

Usually shown under income as a negative

number (deduction from income)

Any funds actually collected shown as bad

debt recovery (added to income)

Typically accounting department or senior

management determines when an account

is to be declared bad debt, per policy.

Rental Income Adjustments

Bad Debt
Money owed to the property that you
have no reasonable expectation to collect

60

59

60

30

Course: Certified Financial Specialist
2020 National Center for Housing Management

Other Income

Parking

Laundry/vending

Pet Rent/pet charges

Interest income

Maintenance charges

Non-Rental Income
All other income of the property;
income other than rent

Security deposit

recoveries

Late fees*

NSF fees*

And others

* Not permitted in HUD 202

61

Course: Certified Financial Specialist
2020 National Center for Housing Management

Lets take a look

Now lets move on to Expenses
and the Bottom Line

There are two kinds of expenses:

OPERATING

and

NON-OPERATING

62

61

62

31

Course: Certified Financial Specialist
2020 National Center for Housing Management

We will get into details of line items in

budgeting

For now, we need to understand how they

are organized: different from company to

company.

Operating Expenses
All cash outlays except balance sheet items
such as capital expenditures and reserve
for replacement deposits

Lets look at an example:
Northfield Apartments Tab 3, pages 3 and 4

63

Course: Certified Financial Specialist
2020 National Center for Housing Management

O
P

E
R

A
TI

N
G

E
X

P
E

N
S

E
S

Course: Certified Financial Specialist
2020 National Center for Housing Management 64

63

64

32

Course: Certified Financial Specialist
2020 National Center for Housing Management

A simple income and expense statement ends at NOI

However, many statements are modified to add balance sheet

items and report net cash (the bottom-line)

Financial activities that takes place after NOI are referred to as

other cash transactions.

Net Operating Income and Net Cash

65

Course: Certified Financial Specialist
2020 National Center for Housing Management

Income

Operating Expenses

Net Operating Income

Other Cash Transactions (OCT)

Other Cash Transactions (OCT)

Net Cash

NOI and Net Cash

Simple Income &
Expense statement
ends here

66

65

66

33

Course: Certified Financial Specialist
2020 National Center for Housing Management

Other Cash Transactions

Lower cash
in operating
account

Reserve for Replacement Funding

(or Deposits)

RE Tax Escrow Funding (or Deposits)

Property Insurance Escrow Funding

(or Deposits)

Principal portion of Mortgage Payments

Fixed Asset/Capital Improvements.

Increase
cash in
operating
account

Reserve for Replacement Releases

(or Recovery)

Tax & Insurance Escrow Releases

(or Recovery)

OPERATING ACCOUNT

67

Course: Certified Financial Specialist
2020 National Center for Housing Management

Course: Certified Financial Specialist
2020 National Center for Housing Management 68

67

68

34

Course: Certified Financial Specialist
2020 National Center for Housing Management

Standard in HUD and FHA properties

Required by most private lenders

Usually determined by formula when

property is financed (or re-financed)

While money is asset of owner, requires

the lender or loan servicers consent to

spend it

Cant spend it on non-capital items.

Replacement Reserves
Money set aside, usually in a restricted
account, for major capital improvements

69

Course: Certified Financial Specialist
2020 National Center for Housing Management

EXTENDED
LIFE

COSTS
OVER

$5,000

CAPITAL ITEM

A major replacement or betterment to the property; an item

having an extended life (more than a year) and costing over a

fixed amount

Exact fixed amount varies from organization to organization

May be paid for out of the Replacement Reserve, operating

cash, owner equity or borrowing.

Capital Improvements

Also known as
Fixed Asset
Improvement

70

69

70

35

Course: Certified Financial Specialist
2020 National Center for Housing Management

Lets practice with Other
Cash Transactions

Turn to Tab #2, Page #5
and do Exercise #5

71

Course: Certified Financial Specialist
2020 National Center for Housing Management

Answers to Exercise #5

NOI (Net Operating Income) $45,045

Other Cash Transactions

Replacement Reserve Funding

Fixed Asset (Capital) Improvements

Tax & Insurance Funding

Replacement Reserve Releases

Cash Position

– $12,000

– $3,450

– $5,000

+ $8,820

$33,415

72

71

72

36

Course: Certified Financial Specialist
2020 National Center for Housing Management

Course: Certified Financial Specialist
2020 National Center for Housing Management 73

Course: Certified Financial Specialist
2020 National Center for Housing Management

Sometimes referred to as cash flow although that

has another meaning to accountants

Often called cash position in non-profits

A related concept is surplus cash:

Used in many HUD-financed properties

Dollar amount determined to be excess income

for any given fiscal year over and above the

propertys financial obligations (aka net cash or

cash position)

Amount must be verified by a qualified auditor.

Net Cash

Bottom line is its the bottom line!
74

73

74

37

Course: Certified Financial Specialist
2020 National Center for Housing Management

Net cash is distributed to

owners or retained for the

future (although sometimes

distributions are limited)

Net cash is retained within the

property for future use

Non-HUD properties usually

are permitted to distribute net

cash to the non-profit sponsor

for other charitable uses

Non-ProfitsFor-Profits

Net Cash: What happens to the money?

75

Reading the Income and
Expense Statement

76

75

76

38

Course: Certified Financial Specialist
2020 National Center for Housing Management

Southtown Apartments

Instructions: Review the Southtown Apartments Income and Expense

statement (found behind the 3rd Tab, Pages 5-7); identify the important

information; record your answers and be ready to report your findings

in 10 minutes.

Turn to Tab #2, Page
#6 and do Exercise #6

77

Course: Certified Financial Specialist
2020 National Center for Housing Management

What did you learn about
Southtown Apartments?

Reading an Income & Expense Statement

78

77

78

39

Course: Certified Financial Specialist
2020 National Center for Housing Management

How the Pros Read Statements

They dont start at the top; it takes too long and doesn’t

provide a context

They read a statement from the bottom up; starting with

the bottom-line, usually cash flow

They typically ignore monthly data at first, focusing on

Year-to-Date numbers

They start with the variance information.

Lets pause here to define variance

79

Course: Certified Financial Specialist
2020 National Center for Housing Management

Perhaps the single most useful tool on an

income and expense statement!

Actual Budget Variance

Rental Income $14,000 $12,000 $2,000

Payroll $14,000 $12,000 ($2,000)

Variance
The dollar difference between what
was budgeted and the actual result

Variances (and therefore the income statement) are
only as good as the budget they are based on.

Note: Numbers in brackets ( ), red numbers and/or
with a minus sign mean Unfavorable to budget

80

79

80

40

Course: Certified Financial Specialist
2020 National Center for Housing Management

Lets look at Southtown again

81

Course: Certified Financial Specialist
2020 National Center for Housing Management

Course: Certified Financial Specialist
2020 National Center for Housing Management 82

81

82

41

Course: Certified Financial Specialist
2020 National Center for Housing Management

Course: Certified Financial Specialist
2020 National Center for Housing Management 83

Course: Certified Financial Specialist
2020 National Center for Housing Management

Start with the bottom-line — the one that

matters to you (whether NOI or net cash)

Look at the variance FIRST

Assess if the property is on track or not

If it is not, look at the totals for income and

expenses versus budget

Zero in on the biggest contributors to the

problem and work back from there.

To summarize:

84

83

84

42

Course: Certified Financial Specialist
2020 National Center for Housing Management

Dont be fooled by what appear to be good variances

Example: Being under budget on maintenance may

not be a good thing

Look at relationships between variances

Example: Under budget on marketing while

vacancy loss is higher than budgeted

Remember, when it comes to variances

Stay away form good/bad and over/under; use
favorable to the budget and unfavorable to the budget

85

Course: Certified Financial Specialist
2020 National Center for Housing Management

Two basic reports:

Balance sheet

Reports on propertys assets and liabilities

Income and expense statement

Site staff primarily use the income and expense

statement

Reports revenues and routine operating expenses

Need to know if statements are cash or accrual

There are at least two bottom-lines: NOI and net cash

Other cash transactions are typically balance sheet items

that impact net cash.

Summary of Part 1 of Program

86

85

86

43

Course: Certified Financial Specialist
2020 National Center for Housing Management

Income and expense statements are often modified to

report other cash transactions

Variances from the budget help identify problems or

issue areas

Be careful with so-called good variances

Read an income and expense statement from the

bottom up to quickly zero in on potential problems

An income and expense statement is only as good as

the budget its based on.

Summary of Part 1 of Program

87

Course: Certified Financial Specialist
2020 National Center for Housing Management

If the property is a HUD they need to be followed

If your property is not HUD theyre great
supporting documents

Guidance for Replacement Reserve 4350.1
Financial handbook and HUD Chart of accounts 4370.2
Management Handbook 4381.5

HUD Handbooks

Discover

88

87

88

44

Part 2
Developing a

Site-Level Budget

Course: Certified Financial Specialist
2020 National Center for Housing Management

By the end of Part 1 we hope you will learn:

A deeper understanding of the

purpose of a budget.

Key steps in the budgeting process

Why and how to forecast a budget

Objectives

How to develop accurate line item

estimates

How capital planning fits in

How to properly spread the budget

over the year

How to present a budget and get the

best reaction.
90

89

90

45

Course: Certified Financial Specialist
2020 National Center for Housing Management

A financial prediction about what will happen in some

future pre-established time period

A plan for the future expressed in dollar terms

It is based on our assumptions about future conditions

It gives us an objective tool to measure financial

performance (including how we are doing in meeting

the owners goals).

Budget

91

Course: Certified Financial Specialist
2020 National Center for Housing Management

Budget Workshop

Course: Certified Financial Specialist
2020 National Center for Housing Management

Task: Each company put
together its budget for the
trip by line item

Assume Leaving on the 1st and returning on the 8th.

92

91

92

46

Course: Certified Financial Specialist
2020 National Center for Housing Management

Best to involve the key functions and levels

Not produced by the accounting department in isolation

Involve central office and site-level staff; management,
financial, and maintenance

Good research leads to better decisions!

Allow enough time; dont start too late, or for that matter, too early.

Budgeting is a Process

The better the process, the better the budget

So, whats a good time schedule?

93

Course: Certified Financial Specialist
2020 National Center for Housing Management

2
MONTHS

OUT

6
MONTHS

OUT

4
MONTHS

OUT

DUE DATE

PREP AND
CAPITAL PLANNING
Put together

schedule and

assignments

Train new staff, if

necessary

Review capital

needs (conduct site

inspection)

DATA COLLECTION AND
BUDGET DRAFTING
Prepare the

re-forecast

Collect market data

and other needed

information

Prepare the first

draft of the budget

PRESENTATION,
ADJUSTMENTS AND
APPROVAL
Get input from

supervisors; adjust

budget

Submit final draft to

owner/board/others

for review and input

Finalize and formally

submit for approval

Work back from the due date!

94

93

94

47

Course: Certified Financial Specialist
2020 National Center for Housing Management

Capital Planning

Determining the larger expenditures on the physical property

for the comi