What about the renovation budget?

[Jorge Abreu]

What about the renovation budget?

Developing a renovation budget is an essential step in adding value to multifamily properties. Renovations, such as upgrading common areas, adding amenities, and improving unit interiors, can be costly, so it's crucial to determine the expenses before acquiring the property.

Seeking the help of a construction professional is recommended to create a comprehensive budget that includes hard costs (materials, labor), soft costs (architectural and engineering fees), and contingencies for unexpected expenses. It's also important to include a projected timeline for each renovation item to understand the impact on rent premiums, cash flow, and property valuation. The multifamily construction budget should provide the total cost and timing for each line item.

Accurately projecting market rent growth comes next, as it directly affects the net operating income (NOI) and ultimately determines the projected sale price and overall value of a property. To make informed assumptions, it is essential to assess the expected rent growth for similar properties in the market over the next few years. While paid databases, like Yardi Matrix, are commonly used for gathering historical rent growth data and projections, free resources, like Zillow Research Data and Zumper Research, can provide a general understanding of rental trends in the absence of a paid database. Additionally, it is important to consider the annual increase in general operating expenses when estimating the NOI and overall valuation of the property.