What to Know About Capital Budgeting in Real Estate — and How Our Team Can Help

Proper real estate management is about more than finding a new space and moving in. It’s about taking the steps to ensure your property and organization continues to be productive and successful for years to come.

So, how do you make this happen?

With a process called capital budgeting.

Unfortunately, many organizations don’t consider the long term during their busy short-term processes of moving, redesign and management. That’s why CTG Real Estate Services is here — to make sure you take all the steps required to ensure your financial success moving forward.

What is Capital Budgeting/Capital Planning?

Before you can create a capital management plan (otherwise known as a “capital budget”), you first need to understand exactly what it is.

It’s just as important for real estate owners and tenants to plan for the future as it is to plan for the short term. Indeed, the long term should inform what you choose to do in the short term. There are typically two ways to set plans in place for the years to come: through facilities planning and capital budgeting.

Your capital expenditure budget should take into account all of the things you will spend capital on in the years to come. It will evaluate the potential expenses and investments you can expect in the future, detailing any preventative maintenance or replacements that will be needed.

Usually, these budgets include big-ticket items like:

  • HVAC systems
  • Kitchen equipment
  • Communications systems
  • Lighting
  • Elevators, security systems, etc.

In addition to the replacement of equipment and furniture, capital budgeting decisions should take into account research, development and production of any new products within the organization; new locations for growth; and other major capital expenditures.

As part of this process, owners and tenants will need to evaluate which projects will yield the most return over an applicable period of time — and which are most crucial to the operations of the space. Capital budgeting and financing decisions will involve the organization’s:

  • Future accounting profit by period
  • Cash flow by period
  • Present value of the cash flows after considering the time value of money
  • Number of years it takes for a project’s cash flow to pay back the initial cash investment
  • Assessment of risks
  • And more

It’s normal to feel overwhelmed by the processes involved in planning capital management. Let the professionals at CTG Real Estate Services handle it for you.

What is the Importance of Capital Budgeting?

By setting a long-term budget and expected timetable for these expenses in advance, owners and tenants can avoid the burdens of unexpected costs in tough financial times. This is by far one of the biggest advantages of capital budgeting done right.

The importance of capital budgeting decisions cannot be understated, as these long-term plans also help maximize a company’s future profits by managing cash flows. It creates accountability and measurability for the company and its employees in protecting and maintaining big-ticket items.

The more a tenant is responsible for in their leased commercial space, the more capital planning that must be done. A capital expenditure budget can be completed at any time — whether a tenant is moving into a new space or has never made a budget for their current space. Not having a capital management plan in place opens up owners and tenants to a great deal of unknowns in their three- or five-year plans (or longer).

For more information about what capital budgeting is and why it’s important, you can always speak to the CTG Real Estate Services professionals.

How Can CTG Real Estate Services Guide My Capital Planning Process?

Having an expert by your side during your personal capital budgeting process is invaluable. Having someone who is an expert in all steps of the real estate development process is even more so.

That’s why so many people choose to work with our team at CTG Real Estate Services. Our CEO and founder Chris Gardner can explain and walk you through the fundamentals of capital budgeting for your business and your real estate space, but his services go beyond that.

CTG Real Estate Services can assist owners and tenants from start to finish when developing a new real estate space. We call these our turnkey solutions, and they include:

But, how is experience in these services beneficial in capital budgeting decisions?

Because our team understands every moving part of establishing and managing a real estate space, our consultations on your capital budget are greater informed. We know what costs you can expect in the future and how to prepare for them — because we’ve been in your shoes. We strive to create a close, genuine partnership with you, whatever services you need, and our mission is to always get your business and real estate space to be as productive and prepared as possible.

For more information about the capital management process in real estate, please schedule a consult with our team members today.

 

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