Analyzing the Deal - Expenses

9 Replies

Hey all!

So I have read a book or two, listened to probably a hundred podcasts, and everyone seems to have the same general idea of what you should be including for your expenses on your deals. 

Everyone also has the same general advice for you should be on your team to start making deals and capitalizing on real estate. 

One of the things I have noticed however, is that when people talk about building your team, they never talk about paying your team. Do you include lawyers fees, CPA fees, etc when you analyze deals? And if so, how do you approach trying to budget accurately. Essentially I am trying to prevent blowing all of our cashflow on paying my team so I want to make sure I am getting deals that allow for everyone to make money.

Looking forward to see what feedback this brings.

- Karl

@Karl McGarvey

When analyzing expenses, I have seen accountants being paid out of the building account. I have also seen expense line items for that or for "other/misc". You should factor them in but they shouldn't be huge fees.

Do you mean a lawyer for closing the property or a lawyer to make LLCs and stuff? If you mean a lawyer to close, that should just be factored into your closing costs.

The bigger things I'm seeing that are missing from building expenses is capex, repairs, and property management. Especially the smaller buildings. I've seen one or two of things included. Rarely all three.

@Karl McGarvey tax accounting is maybe $50 a unit for the first few then gets dramatically less per u it from there.

For just one property it is not too complex to do on your own. Especially if you hire a cpa to answer some of your questions.

@Geordy Rostad Mostly looking at things like if I need them for an eviction, or setting up an LLC. Was not sure how much people actually see themselves spending out of pocket each year on things like that.

@Tyler Weaver $50/unit per month? (I want to assume this but that's what gets us into trouble haha)

I was thinking per year. In reality it does not scale very well, and is probably closer to a fixed cost.  

It is probably about $500 a year to file taxes if you have your stuff together and have a CPA do everything.  It probably does not get much more complicated from 1 property to 25 if you have all your numbers together for them.

On the legal side, I am not sure an LLC is the best move for an SFR or two. An eviction in my area costs about $250.

@Karl McGarvey Good thinking. These are things that I rarely see people talk about or budget for. Even things like closing costs, for some reason I rarely see that in a deal analysis. Setting up your LLC and attorney fees can vary widely. Ive seen 300 per entity (plus the state filing fee itself) to about 1500+ per entity (plus the state filing fee). Of course you can also do it yourself online which isn't usually recommended. Another cost most new investors dont usually include is the property management listing fee. This could be 8% a month if they charge a full months rent to lease.

@Daniel Kong The PM listing fee is also something I noticed, a full months rent for getting renters can almost nullify your cash flow for the year depending on your numbers. 

@Karl McGarvey

I always include broker and attorney fees in deal analysis

You might have a contract rate worked out with an attorney in your "team",

As far as CPAs or administrators that's a separate contract rate that should be in your business budget.

You can get contracted rates or hourly charges. You need to figure out what your working capital is and how much you want to spend on those service providers.

@Geordy Rostad

If your renting you would need to analyze the cap rate and mgmt charges. But not for a wholesale or flip

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