Full Breakdown: Operating Expenses

[Justin Goodin]

People often ask me how they should determine their operating expenses. 

These numbers should be determined using a combination of the historical financial data available, feedback from your property management company, your business plan, and the property characteristics.

Generally, you can expect per unit numbers like this:

Repairs & Maintenance: $200 – $500 per unit

Administrative: $150 – $350 per unit

Unit Turnover: $200 – $300 per unit

Contract Services: $200 – $500 per unit

Utilities: $800 – $1,200 per unit

Advertising $100 – $300 per unit

Payroll $1,000 – $1,600 per unit (very market specific)

Insurance: (very market specific)

RE Taxes: (very county specific)

Again, these are very general per unit numbers but they should help provide you with guidance. 

Typically, your stabilized operating expense ratio (Total Operating Expenses / Effective Gross Income) should be between 35% and 50%. So if a property had $1,000,000 in effective gross income, I would expect the operating expenses to be around $450,000 (45% of income).

What expense ratios are typical in the markets you are buying in?