Most savvy multifamily owners, operators and marketers will no doubt have completed their 2024 apartment community budgets by this time. In fact, many begin the budget-preparation process months in advance, some as far back as June of each year. But before you finalize your budgets, it’s always wise to circle back and take a fresh look at your numbers.
Why, for example, should you start 2024 with a budget based on the 95 percent occupancy rate you had in the third quarter when your current occupancy is 92 percent? Or base your expenses on an insurance quote you received in June when insurance premiums are so erratic?
“Revisit your budget, because a lot changes between August and November, and it’s a great time to take another look back to see if any new conditions have cropped up,” said Lisa Gunderson, vice president of asset management for Bristol Development Group in Franklin, Tenn. “Then you can refresh it before it goes into effect in January.”
Here are five factors to consider before finalizing your 2024 apartment community budgets.
Current market conditions
Make sure you reevaluate current market conditions before finalizing your budgets to ensure that the assumptions you made are still correct. For example, are your projected rents for 2024 valid in view of the fact that the rate of rent growth is slowing in many markets? Will you have to give concessions to hit your occupancy targets in 2024?
What about new apartment construction? How many new units are expected to be delivered in your market in 2024? According to Yardi Matrix, apartment developers delivered 1.2 million new apartments nationally over the past three years, and another 460,860 are slated to hit the market by the end of 2023. How will this affect your occupancy rates and rents in 2024?
These are just a few of the market conditions—interest-rate forecasts are another—you should check and recheck before finalizing your budgets.
“We try to get some statistical data, (such as) population growth in the market that we’re in, to try to gauge what demand will be compared to inventory,” Gunderson explained. “We also look at consumer price index forecasts so we can assume property tax increases of X, or I’ll get feedback from my asset manager cohorts to compare notes on insurance increases to budget for.”
Actual vs. budgeted variances
Take a look at your 2023 budget to determine areas where your projections were incorrect. Are there expenses you need to adjust for in 2024?
A review of the 2023 budget for Bristol Development’s Main and Clay community in Louisville, Ky., found that payroll was budgeted for incorrectly. Twice a year, there are three payroll periods in a month, rather than just the two budgeted for. “Getting this correct takes time, effort and input from the management firm’s accounting group,” Gunderson said.