A property manager bases the operating budget on:

• A. Anticipated expenses and revenue
• B. Historical expenses
• C. Market rents
• D. Tax assessments

Answer: (A)

The main idea is forward-looking planning: an operating budget is a forecast of the property’s expected cash inflows and outflows for the coming period. A property manager uses anticipated revenue from rents and other income, and anticipated operating expenses (maintenance, utilities, salaries, insurance, admin, etc.) to create this budget. This approach helps with cash-flow planning, cost control, and resource allocation. While historical expenses can inform estimates, relying only on them ignores changes in occupancy, rents, or costs. Market rents influence potential income, but the budget must reflect what is actually expected to be collected given current leases and conditions. Real estate taxes are handled separately from the operating budget, so they aren’t the basis of the operating forecast.