Working with Apartment Managers on Budget Projections - Apartment Real Estate Investing

There are property managers you want to get involved and get their input in, as part of the due diligence process. Make sure that the budget that they come up with in operating this property, to meet your requirements, fits within your underwriting.

What we generally do is we don't share our budget with the property manager. We get their budget, and then we make sure that our budget is more conservative than the projections of the property manager. We make sure that our lease-up schedule, and the ramp-up to lease all the units is more conservative than what the property manager has. Similarly, the rents, if they are projecting X amount of rents, we generally underwrite it to be slightly below, just to be on the conservative side.

The same thing with expenses, as well. We bump up the expenses, saying, let's anticipate slightly higher expenses. We also have a fairly good idea of what the expense ratios are, and what each of those expenses are in the market. That's part of the market intelligence we capture before we go into that market. There are some sources and reports you can get that tell you, "On average, in this market, for this vintage property, here's what the expenses typically look like." We benchmark it across that, as well.