Diving deep into the month by month numbers

10 Replies

Hey BP,

Does anyone have a Monthly P+L/budgeting template they use for underwriting bigger value add apartment deals they would be willing to share?

Have an accepted LOI on a 46 unit apartment building. The value add will be mostly in increasing the projects occupancy from low 70s% to market occupancy (about 94% physical, 91-92% economic). We have budgeted a Capex assumption and have solid working year 1 Opex developed with our property manager.

But I want to create a Month by month budget for the first year incorporating our construction project timeline (wll be developed during due diligence) and the Expiration schedule on the leases. We will raise 9 months of principle and interest reserves (along with the funds to close and Capex) but I want to have a clear picture of what each month will look like so we can plan for any weak spots up front.

I am not an Excel wizard so if anyone has a tool they can share for this type of budgeting that would be spectacular. 

Thank you!

Congrats on getting your LOI accepted. Exciting stuff! Unfortunately, I only have a year by year P+L, not monthly. I assume though, that you can take your existing P+L and break it down into month by month, but that could be a good amount of work. Wish I could be of more help. Good luck!

@Maxwell Manatt congrats! I’ve got a 40 closing in 2 weeks. Here’s a spreadsheet I use on an annual basis and to analyze a potential acquisition that should be helpful. https://docs.google.com/spreadsheets/d/1KyxuyCYIe7MwFJ6Tumqu14ZgyA-nN305GvUCP0qcnnI

@Maxwell Manatt I will PM you a spreadsheet that I set up for a 19 unit. It is fairly rough, but in line with what you are describing above. It lays out on a quarterly basis, capex budget and cash flow. It also has a unit by unit monthly reno schedule.

@Scott Skinger @David Walkotten @Michael Badin @Annie Dickerson

Thank you all for chiming in!

Obviously I could just divide my yearly PL by 12...lol

But that would smooth out all the numbers. Actual trailing 12 PL's that I have seen are not  smooth and on a big turnaround project I am sure the first year will be very up and down from month to month depending on lease expiration and the renovation schedule. 

So I am looking to plan for those fluctuations as much as possible to make sure we will be very safe from a cash standpoint all through the first year.

@John Casmon episode with @Omar Khan (not mentioning for some reason)  goes into more depth (Episode 52):

https://www.casmoncapital.com/podcast

@Maxwell Manatt , have you asked the seller for monthly P&Ls going back several years? On the deal I closed last month, the system the seller used could not generate T12s so I asked for and received monthly P&Ls going back five years. This gave me a great look at expenses (when and how much) and changes in rental income. It was helpful in developing an accurate pro forma (for the lender AND for myself) and I was able to build a T12 from the data. Good luck!

Originally posted by @Maxwell Manatt :

@Scott Skinger @David Walkotten @Michael Badin @Annie Dickerson

Thank you all for chiming in!

Obviously I could just divide my yearly PL by 12...lol

But that would smooth out all the numbers. Actual trailing 12 PL's that I have seen are not  smooth and on a big turnaround project I am sure the first year will be very up and down from month to month depending on lease expiration and the renovation schedule. 

So I am looking to plan for those fluctuations as much as possible to make sure we will be very safe from a cash standpoint all through the first year.

@John Casmon episode with @Omar Khan (not mentioning for some reason)  goes into more depth (Episode 52):

https://www.casmoncapital.com/podcast

Taking annual #s and dividing by 12 is going to give you the wrong answer and cause a ton of problems.

This is because value-add project are heavily weighted in the first months and stabilize over the year. Hence, 9/10 you will run into issues where you grossly over-estimate your liquidity in the first few months and vice-versa. 

Liquidity management will be your (and everyone's) biggest challenge. You have to be maniacal in making sure you never face a cash crunch because no lender, property manager, contractor etc is going to wait months on end (and continue doing the work), while an investor sorts out their problems. 

This isn't as big of a problem if the building is adequately cash-flowing and you have minimal value-add rehab. In the case of value-add, your lender will expect to see monthly #s to ensure you are staying on track. 

A lot of this work gets done in the background and, most, capital raisers only see the smoothed out #s. You will have to dig deeper if you're the operator. 

Plus, once an investor gets behind the business plan, then they're just playing catch up as it gets hard to not drown as you are trying douse multiple fires.

Happy to continue our conversation over PM.

@Maxwell Manatt  , as @Omar Khan pointed out the first months of a value add play will be the most difficult as you have greater vacancy, turnover and CapEx. Most value add revenue streams can't be fully implemented right away. Even a RUBS initiative won't deliver 100% payment from residents and can spark a greater number to move out. We anticipate a drop in effective occupancy early on as we implement our takeover strategy and begin renovations.