Have you started on your 2025 budget for your commercial property? A couple important line items include operating expenses and capital expenditures. Maintaining and improving your commercial property are essential to keep it operational and, hopefully, profitable. We want to help you plan for next year by covering these important budgeting expenses.
Operating Expenses
Operating expenses are the costs of running and maintaining your property. This includes utilities, repairs, maintenance, insurance, property taxes and management fees. Operating expenses affect your net operating income (NOI), which is the difference between your rental income and your operating expenses. NOI is a key indicator of your property’s profitability and value. You should aim to keep your operating expenses as low as possible without compromising the quality and safety of your property.
One of the trickiest components to budget for in this category would be maintenance and repairs. Make sure you consider the following when preparing your budget:
- Routine Maintenance Costs – recurring costs for day-to-day upkeep such as cleaning, landscaping and trash removal
- Repairs & Replacements – fixing unexpected issues or replacing worn-out equipment, fixtures or systems.
- Equipment & Tools – everything you need to properly maintain your property
- Contractors & Service Providers – hiring electricians, plumbers and HVAC technicians for specialized tasks
- Supplies & Materials – cleaning supplies, paint, replacement parts, landscaping materials, etc.
As you can see, a lot goes into the operating expenses category. Take into account the age of your building and its various systems to know if you’ll have any major replacements coming up next year. You also need to decide who maintains the property. Do you handle that internally with your own maintenance team or do you hire an outside maintenance company like BMM?
Capital Expenditures
Capital expenditures (CapEx) are the costs of improving or replacing major components of the property, such as roofs, elevators, HVAC systems or parking lots. These expenses are typically not recurring, but they can have a significant impact on your cash flow and property value. CapEx can enhance the functionality, appearance and marketability of your property, as well as extend its useful life and reduce future maintenance costs. CapEx requires a large upfront investment, so be sure you plan carefully and allocate sufficient reserves for this expense in your budget.
Some examples of Capital expenditures:
- Custom improvement projects (big or small)
- Exterior painting
- Siding repair or replacement
- Roof repair or replacement
- HVAC system upgrades
- Door or window replacement
- Parking lot repair or resurfacing
- Fixture upgrades
- New landscaping
For this area of expenses, you may need to do an overall review of your property. Check systems and fixtures. What is getting old, what should be replaced, what needs to be updated? Do a thorough inspection so you know what needs to be done in 2025 to improve your building or property. Then estimate the cost of the needed upgrades to include in your budget.
As you are budgeting for next year’s improvements, consider who you’ll hire to complete the work as well. In addition to ongoing maintenance, BMM can assist with your capital improvements. From small to large projects, our team can handle everything from permits to completing the work or finding the best contractor for the job.
As you plan for 2025, remember to make room in your budget for operating expenses and capital expenditures. If you need help with either of these tasks this year or next, reach out to BMM. You can call us at 763-541-4886 or contact us to learn how we can help.
