Getting an estimate on the expenses

5 Replies

I've been reading several things recently that have mentioned getting a rough idea of the return of the property to see if it fits your criteria. I know you can get an idea on the taxes on the property and the amount of the monthly mortgage payments, but how do you get an idea of the expenses before taking the property under contract?

One of the books mentioned finding comps and determining the percentages of each expense to quickly find any discrepancies. (ie. Water ~ 5%, Electricity ~ 10%, etc.) So does that mean I need to get these properties under contract just to find out their real expenses only to turn around and tell the seller that I don't actually want the property?

Thanks ahead of time for any assistance anyone can offer me.

I use the 50% rule of thumb for initial calculations -- that is 50% of the rental income will go toward expenses.

The renters pay the utilities for a SFH. Other than that, there are no expenses to estimate.

If a faucet breaks, fix it. $30.00

If the AC quits working get it fixed, $185.00

Minor repairs just get done. Pay the repairs as you go. They are usually not that much. Now if you have a major problem, you don't really budget for that either. Just hope that nothing major happens until you get a bunch of rentals and it will also just get fixed.

You could set aside a certain percentage every month for possible repairs. But if you only have a one or a couple of rentals your goal is not to spend any cash flow but plow into paying down the debt or saving all to buy more properties.

@Shiloe B.   That is definitely my go to to weed through hundreds of properties. But I'm thinking a step further into the process. If I look at a hundred using the 50% rule, then I might get 10 that pass, and I'm referring to how I might analyze these 10 houses.

@Arlan Potter   I don't know if it's because everything I'm reading is dealing with multi-plexes or if not all SFHomes are in the same situation you mention. The book I'm reading now(Frank Gallinelli's "What Every RE Investor Needs to Know About CF") mentions expenses like insurance, repairs, taxes, trash service, lawn care, utilities, etc.  He mentions looking at other properties currently for sale and examining their operating statements. Is this something more along the lines of large apartments and commercial RE rather than single family and small multi-family(2, 3, & 4 unit) housing?

For multifamily (5+ units) expense data check with the local apartment owners or landlords association. Another source could be the local university's business school, especially if they have a real estate focus. Most large markets will have at least one private company collecting and supplying data but you'd have to search around to see if someone is doing that in Columbia. What do local apartment brokers use?

Good hunting-

@Chris Duzan  

I had the same problem when I started looking at properties a little closer.  My go to was just to ask around to people around the area that I know in comps.  The seller will sometimes provide you with these numbers if you ask too.  Looked at a few properties downtown where the seller's agent gave me figures for almost all the operating expenses.

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