Elements of a Successful Capital Improvement and Replacement Plan
A sound capital improvement and replacement plan begins with a comprehensive assessment of the condition of the property. The assessment should include information about the infrastructure, site improvements, structures, systems, and fixed assets. If the maintenance program has been carefully created and closely followed, a maintenance supervisor or real estate manager will have a wealth of information already on hand.
The capital improvement/replacement plan should also contain detailed information about the property, such as the following:
- Dates of service
- Effective life cycle
- Estimated replacement costs
- Budgets established and tracked
Whenever a capital improvement is made, a plan for its replacement should be made, monitored, and adjusted throughout its life cycle.
Property operations management (POM) software programs have almost all the data a real estate manager needs to create an effective capital improvement plan. The next steps are to analyze the life cycle of a building’s component systems and site features and integrate financial planning, capital acquisition, and resource allocation.
A comprehensive capital improvement and replacement plan provides for wise planning for the future while increasing knowledge about a property’s ongoing needs.
Through application of a capital improvement plan, operating costs can be brought under control, and maintenance, service, and customer satisfaction levels can be improved.
Comments
As an agent for owners, a real estate manage must not only know the nuts and bolts of leasing, collecting rent, and paying bills, but must also prove their value to a client by implementing long range cost saving programs such as capital improvement plans. A good article, now the manager of particular types (retail, office, apartment, etc.) must delve in more detail the components unique to their property type, keeping mind that if you manage HOA's, this work is done for you with Reserve Studies.
The Capital Improvement Program is an important part of operating a successful property. Properly implemented it also adds value to the property.
Your comment here. Another component to a succesful Capital Improvement plan is the allocation of funds on a regular basis, which can be based on a per unit figure or life expectancy figure of certain assets. By palning ahead with funds it is not as painful as trying to request larger amounts of capital at one time.
The Capital Improvment Plan is important and should be discussed with the other memberse of your team to determine what will be best for each property. The items in this plan will add value and hopefully gain a better return
Because I work for a REIT, the capital improvement plan must be approved not only by senior management but also by the Board of Directors. Often times, items included in the plan for the current year are not able to be completed because they are denied by the Board. Therefore, it is imperative to prepare a detailed plan including not only a description of the capital improvement but also important information such as payback, ROI, useful life, rebates if applicable, history, comparison if improvement is not made, etc. Basically, you have to sell the plan, especially since capital improvements are typically very costly.
The Capital Improvment Plan is an essential part of our overall budgeting process. The process of compiling all the information from the different departments for the years ahead reminds everyone of our common goals and brings a sense of security to the owners.
The Capital Improvement Plan is a report that should be created and periodically reviewed and updated. A number of associations hire private firms to prepare an independant audit/review at reasonable costs. These firms specialize in preparing cost studies and long term capital improvement analysis. We prepare 1, 3 and 5 year capital improvement plans.
- Owen Ahearn | Flag this comment for review