What you need to know for your 2025 budget plan

Executive summary

As you prepare your condo or co-op's 2025 budget, keep these key points in mind:

1. Expect significant cost increases in insurance premiums (20-30%), energy costs (3-7%), and property taxes (~5%).
2. Prioritize compliance with NYC regulations, especially Local Law 97 for emissions reduction.
3. Invest in sustainability and energy efficiency to reduce long-term costs.
4. Plan for long-term financial stability while addressing immediate needs.
5. Stay vigilant about common budgeting pitfalls, such as underestimating inflation or neglecting maintenance.

Understanding the 2025 economic landscape

As you begin preparing your 2025 budget, it's crucial to have a clear picture of the economic factors that will impact your condo or co-op's finances. 

Key factors to consider:

• Inflation projections: Economists expect inflation to stabilize, but plan for a 2-3% increase in general costs.
• Real estate market trends: Keep an eye on property values and rental rates in your area.
• Interest rates: While difficult to predict long-term, interest rates can impact your ability to secure loans for major projects or refinance existing debt.

Expert Tip: "Stay informed about broader economic trends, but don't let short-term fluctuations derail your long-term planning. Focus on creating a resilient budget that can withstand various economic scenarios." - Alex Thompson, Real Estate Economist

Anticipating major cost increases

Several key areas are likely to see significant cost increases in 2025. Being prepared for these can help you avoid budget shortfalls and maintain your building's financial stability.

Insurance premiums

• Expect a 20-30% increase in building insurance premiums for 2025.
• Consider strategies to mitigate insurance costs:some text
  • Improve building safety features
  • Increase deductibles (while ensuring you have reserves to cover them)
  • Shop around and work with an experienced insurance broker

Energy costs

• Water rates: Expect a 5-7% increase based on recent NYC Water Board projections.
• Electricity: Plan for a potential 3-5% increase.
• Natural gas: Budget for a possible 4-6% increase.

To manage these rising costs:

• Invest in energy-efficient upgrades (which can also help with Local Law 97 compliance)
• Implement a building-wide energy management system
• Educate residents on energy conservation practices

Property taxes

• Expect around a 5% increase, based on rising property values and city assessment practices.
• Work with a tax certiorari attorney to protest your property's assessed value.
• Budget conservatively for taxes, assuming the full increase, but be prepared to adjust if your protest is successful.

Regulatory compliance and associated costs

New York City has numerous regulations affecting multifamily buildings, and compliance costs need to be factored into your budget. Pay particular attention to Local Law 97 (Building Emissions Law), which sets greenhouse gas emission limits for buildings over 25,000 square feet, with the first compliance deadline in 2024 and stricter limits coming in 2030.

• Review your building's current emissions and energy usage.
• Budget for energy efficiency upgrades that will help you meet the 2024 and 2030 targets.
• Consider the potential costs of non-compliance – fines can be substantial.

For other NYC-specific regulations, ensure you're budgeting for required inspections and potential remediation costs.

Sustainability and energy efficiency investments

Investing in sustainability isn't just good for the environment – it can lead to significant cost savings over time.

Consider budgeting for:

• Energy-efficient lighting and appliance upgrades
• Improved insulation and window replacements
• HVAC system optimizations
• Installation of solar panels or green roofs
• Water conservation measures

Look into available incentives and funding programs, such as the NYC Retrofit Accelerator or NYSERDA opportunities, to help offset costs.

Communication and transparency

Clear communication with owners and residents is key to a successful budget process.

• Hold informational meetings to explain major budget decisions and their rationale.
• Conduct surveys to understand resident priorities and concerns.
• Provide regular updates on the building's financial health and upcoming projects.

Long-term financial planning

Balancing short-term needs with long-term vision is crucial for your building's financial health.

• Create multi-year budget projections to anticipate future expenses and plan accordingly.
• Identify potential major capital projects for the next 5-10 years and start planning for them now.

Common budgeting pitfalls and how to avoid them

Be aware of these common mistakes to ensure a more robust budget:

• Underestimating inflation and cost increases: Always err on the side of caution when projecting future costs.
• Neglecting preventive maintenance: Skimping on maintenance often leads to more expensive repairs later.
• Focusing too much on short-term savings: Sometimes, spending more upfront can lead to significant long-term savings.

Leveraging AI for budget preparation

Consider using AI tools to enhance your budgeting process:

• Analyze past years' spending patterns and identify potential savings.
• Generate projections for upcoming building needs and maintenance schedules.
• Calculate optimal increases in common charges or maintenance fees to reach long-term goals.
• Identify potential compliance issues related to NYC-specific regulations.

Finalizing and implementing your 2025 budget

• Start the budget preparation process early, ideally 4 months before the fiscal year begins.
• Hold a dedicated board meeting to review and approve the final budget.
• Communicate the approved budget to all owners, highlighting key changes and the rationale behind them.
• Regularly monitor actual expenses against the budget throughout the year and be prepared to make adjustments as needed.

Frequently asked questions

1. Q: How much should we increase our common charges for 2025?
   A: Given projected cost increases, many buildings are considering 5-10% increases. Review your specific expenses and long-term needs to determine the appropriate amount for your building.
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2. Q: Should we prioritize Local Law 97 compliance or building repairs in our 2025 budget?
   A: Both are important. Try to address both by looking for overlapping solutions, such as energy-efficient upgrades that also improve building systems.
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3. Q: How can we convince reluctant owners to support necessary budget increases?
   A: Transparency is key. Provide detailed explanations of cost increases, long-term benefits of proposed expenditures, and the potential consequences of underfunding. Consider holding informational meetings to address concerns directly.
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4. Q: Is it better to have a special assessment or increase common charges to cover a large expense?
   A: Generally, gradual increases in common charges are easier for owners to manage than large, one-time assessments. However, for very large, one-time expenses, a special assessment might be appropriate.
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5. Q: How often should we update our reserve study?
   A: It's recommended to update your reserve study every 3-5 years, or more frequently if your building undergoes significant changes or unexpected major expenses.

Remember, every building is unique, and while these guidelines provide a solid framework, your 2025 budget should be tailored to your specific needs and circumstances. Regular communication with owners, professional advice when needed, and a commitment to long-term financial health will help ensure your building's success in 2025 and beyond.