MANAGING REPORTS AND INSURANCESiti Hasniza Binti RosmanUniversiti Teknologi MARA (UiTM)

Table of Content1. Operating Reports2. Financial Reports3. Cash Flow Statement For Tax Purposes4. Determining Profitability5. Tax Records6. Risk Management And Insurance7. Types Of Insurance

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.

Financial Reports The manager needs to be familiar with

three (3) different reports:1. Budget comparison statement2. Income and expense report3. Operating budget

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.

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.

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

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

Income and expense report Profit and loss statement Gross Receipts – Operating Expenses –

Total Mortgage Payment + Mortgage Loan Principal = Net Profit

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.

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.

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%.

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.

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.

Determining Profitability1. Break-even analysis2. Return on investment3. Capitalization rate

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.

Break-even analysis The formula for calculating a property’s

break-even point is as follow:

BE = FC 100 - VCR

BE = Break-even pointFC = Fixed costs (including mortgage payments)VCR = Variable costs ratio

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 flowEQUITY = EquityROI = Return on investment

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= CapitalizationI = Net operating income before

debt serviceV= Value of property

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.

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

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.

Risk Management & InsuranceRisk Management Theories1)Identifying the risk & measuring its frequency and financial severity2)Avoiding the risk or discounting the loss-causing activity3)Controlling the risk with safety programs, loss reduction plans and emergency preparedness4)Retaining the risk & internally funding loss consequences 5)Transferring the risk to insurers or to third parties6)Monitoring the results and ongoing fit of the risk management strategies implemented.

Property Manager As A Claim Adjuster The property manager will be

responsible for arranging preservation of the property & later negotiating with insurance company representations.

Types of Insurance1) Standard fire insurance2) Replacement cost insurance3) Machinery and equipment insurance4) Loss of income insurance5) Pollution liabilities insurance6) Workers compensation insurance7) Employer liability insurance

Policy Content1) The insurance agreement2) Policy exclusions, limitation & reduction3) Policy condition & warranties4) Policy territory & reduction

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