Multifamily Expenses

21 Replies

I am looking to start investing in multifamily properties.  I have set up my proforma spreadsheet and I am pretty sure the calculations are correct. 

When I evaluate properties what are all the expenses associated with the property I want to make sure I am not leaving one out.  I have the following accounted for;

Real Estate Taxes

Insurance

Repairs/maintenance

Utilities

Advertising

Property management

Landscape

What if anything am I missing? 

Should I be including Reserves in the expenses? 

Thanks for the help. 

@Derek Buescher you have a good list going. Off the top of my head, I'd suggest budgeting for payroll (if you're employing people). On bigger buildings, payroll expense is in addition to mgt fees. Accounting and legal fees should be included. evictions aren't cheap. Additionally, many cities require some type of business license or permits. On my Hawaii properties, I pay business tax (% of gross) in addition to property tax, which was a big miss I didn't know to factor in. Be sure to verify if there are additional business taxes in your area that need to be paid. Also, I didn't see vacancy on your list … be sure to factor that in as well.

Capex reserve is generally a below-the-line expense, that I factor above the line when I underwrite because its real money that needs to be set aside…and money out of your pocket at the end of the day. Sellers like to keep it below the line to boost NOI, but I factor it in when estimating my IRR. It then becomes a discussion/negotiation point.

Kevin Young, Central Pacific Communities, LLC | http://kevinpaulyoung.com

I would add vacancy factor. It's not a regular expense, but you need to plan on it to be prepared. I usually factor in 10% but hope to keep it well below that. If the area or building you're looking at has a higher factor, you'll have to figure that in.

Thank you everybody for the response.  I have added vacancy into my spreadsheet at 10%.  This is how I set up my spreadsheet.  Do my percentages look right for concessions, property management and reserves? 

Potential Rental Income
Vacancy10%
Concessions/Delinquent1%
Net Rental Income
Other Income
Effective Gross Income
Operating Expense
Insurance
Real Estate Taxes
Repair/Maintenance
Utilities
Advertising
Property Management5%
Landscape/Pool/Pest
Replacement/Reserve4%
Other 1
Other 2
Other 3
Other 4
Total Expenses

Sorry this is a little confusing.

Potential Rental Income

Vacancy 10% of effective gross income

Concessions/Delinquent 1% of effective gross income

Net Rental Income

Other Income

Effective Gross Income


Operating Expense

Insurance

Real Estate Taxes

Repair/Maintenance

Utilities

Advertising

Property Management 5% of effective gross income

Landscape/Pool/Pest

Replacement/Reserve 4% of effective gross income

Other 1

Other 2

Other 3

Other 4

Total Expenses

 

Hi Derek,

I'm not sure if these are valuable for a pro-forma, but they are real world expenses on my P&L's - Office Expenses, Phone, Auto expenses, returned deposits.

Jeff

Labor/Payroll is an item I don't see on there, that I would include. For the properties we appraise, there is usually a General Administration category too (office expenses, etc). Turn over costs are typically a separate item from the R & M.

Include the reserves - this varies greatly from project to project, but it does play into the NOI and thus your cap rate.

Thanks for all the advice I really appreciate it. 

Originally posted by @Brie Schmidt:

@Derek Buescher   Yes, Cap Ex - I do $1k per unit per year

@Brie Schmidt Can you explain your $1k/unit yearly breakdown for Cap Ex? Where does this number originate from for you?

I have heard it stated anywhere from $250-450/unit yearly. Curious why your number may be larger. Thanks!

Transfer of ownership fees, application fees, LLC fees, mowing and snow removal fees. Lease creation fees, attorney fees.

I was thinking snow removal but I saw the location.    For utilities make sure you get them all , trash removal tends to get forgotten.  

I think if you are looking at properties there are ongoing expenses and  purchase related expenses.  For the purchase -budget adequately for inspections as an upfront cost and maybe pest control upfront. Build defered  maintenence into the initial purchase. 

And code related inspections- we are are required to have quarterly fire inspections by local code  so that is one of our  costs.  Know what applies in your city or town that you may need to absorb in cost. 

Typically, expenses are grouped to sub totals with individual line items. For example, sub totals I've used are:

  • Rental Income (GPR, Vacancy, Concessions, etc.)
  • Other Income (Late fees, app fees, vending, etc.)
  • Bad Debt (write-off, collected, etc.)

Total Income (Sum of above sub totals)

  • Renting Expense
  • Admin Costs
  • Salaries/Benefits
  • Contract Repairs
  • Maintenance/Repair Supplies
  • Management Fees
  • Utilities
  • Taxes
  • Insurance
  • Property Improvements

Total Operating Expenses

NOI

  • Property Improvements
  • Interest Expense
  • Partnership & Other Expenses

Net Income


Each of these sub totals will have their own individual accounts which feed them. The level of detail/number of accounts which you add is mostly dependent on the the size of the project and the level of detail which your accounting system utilizes.

-Justin

@Derek Buescher   I own a 4 plex in the city of Phoenix. If you don't already know, you have to pay sales tax on rental income. This should be part of your calculations if you do business in that city. I see you are from Mesa, so it could be a possibility. 

https://www.phoenix.gov/financesite/Documents/d_037814.pdf

[email protected] | 402‑965‑1853

Originally posted by @Anthony G.:

@Derek Buescher  I own a 4 plex in the city of Phoenix. If you don't already know, you have to pay sales tax on rental income. This should be part of your calculations if you do business in that city. I see you are from Mesa, so it could be a possibility. 

https://www.phoenix.gov/financesite/Documents/d_037814.pdf

Thank you.  I will factor that in as well.

Hi All,

for income the summary shows what you must factor:

Rental Income
Vacancy
Concessions
Lost Rent

Meanwhile, here is a list of other income you may have:

Other Income
Vending Income
Damage Income
Utility Income
Late Fees
Corporate Furniture Rental
NSF Fees
Warrant Fees
MTM Fees
Short Term Lease Fee
Notice/Termination Fees
Transfer Fees
Forfeited Rent and Deposit
Application Fees
Administration Fees
Utility Reimbursment
Electric Reimbursement

For expenses, here is the summary of items you must factor the following:

Payroll & Related
Utilities
Marketing Expenses
Administrative Expenses
Repairs & Maintenance
Turnkey
Contract Services
Managements Professional Fees
Property Taxes
Payroll with Management
Insurance

I am expanding some of the expenses category for you to be aware of what kind of expenses you can expect for a 50+ unit...

for instance, here is the payroll expanded sub-categories...

Payroll & Related
Salaries - Management
Salaries - Leasing
Salaries - Maintenance
Overtime / Inconvenience Wages
Bonuses - Incentives
Leasing Commissions
Temporary Help
Employer Related Payroll Expense-ADM

Utilities expanded:

Utilities
Electric - Occupied
Electric - Common Area
Electric - Vacant
Water and Sewer
Trash Removal
Utility Billing / Recovery Service

Marketing expenses expanded:

Marketing Expenses
Advertising - Signage
Internet Advertising
Other Advertising & Marketing

Administrative expenses elaborated:

Administrative Expenses
Training and Education
Career Apparel
Postage and Freight
Telephone
Bank Charges and Fees
Office Supplies
Dispossessory Fees
Mileage Reimbursement Expense
Printing & Forms
Copier Expense
Computer Expense
Answering Service
Dues and Subscriptions
Credit Fees
Professional / Legal Fees
Meals and Entertainment
Travel Expense
Employee Screening
Employee Recognition
Overhead - Acctg & Admin Fees

Repairs and Maintanance expanded:

Repairs & Maintenance
Other Interior Maintenance
Exterior- Painting
Exterior - Doors and Windows
Exterior - Carpentry
Exterior- Lighting
Exterior - Signage Repair
Parking Lot Maintenance
Tools & Supplies
Other Exterior Maintenance
Interior - Carpentry
Interior - Cleaning
Interior - Electrical
Interior - Fixtures
Interior - Flooring
Interior - Hardware
Interior - HVAC
Interior - Paint
Interior - Plumbing
Interior - Window Coverings
Interior - Appliance Repairs
Turnkey
Turnkey - Carpet Cleaning
Turnkey - Cleaning
Turnkey - Painting

Contracting expenses can include:

Contract Services
Landscaping Maintenance
Landscaping Other
Equipment Rental and Maintenance
Exterminating / Pest Control

Property taxes are straight forward, and grouped with insurance:

Property Taxes
Property Taxes
Total Property Taxes
Insurance Property Insurance

Hope that helps.  

From the above, you should then be able to derive the following:

Total Operating Expenses
Expense per Unit
Net Operating Income (Loss)
Net Operating lncome/(Cost) per Unit
Interest & Misc Expense (ie mortgage)
Capital Expenses
Net Income (Loss)
Net lncome/(Cost) per Unit

Pay attention to utilities, it can grow into an alligator instead of a cash cow!

All the best,

Gautam

[email protected]

Oops that did not come out aligned correctly... let me repost...

Hi All,

for Income the summary shows what you must factor:

Rental Income 

Vacancy 

Concessions 

Lost Rent

Meanwhile, here is a list of Other Income you may have:

Other Income 

Vending Income 

Damage Income 

Utility Income 

Late Fees 

Corporate Furniture 

Rental NSF Fees 

Warrant Fees 

MTM Fees 

Short Term Lease Fee 

 Notice/Termination Fees 

Transfer Fees 

Forfeited Rent and Deposit Application Fees 

Administration Fees 

Utility Reimbursment 

Electric Reimbursement

For Expenses, here is the summary of items you must factor the following:

Payroll & Related 

Utilities 

Marketing Expenses 

Administrative Expenses 

Repairs & Maintenance 

Turnkey Contract Services 

Managements Professional Fees 

Property Taxes 

Payroll with Management (often times management will hire staff, so you can keep this together or separate it, depending on how you wish to track the data)

Insurance

I am expanding some of the expenses category for you to be aware of what kind of expenses you can expect for a 50+ unit...for instance, here is the payroll expanded sub-categories...

Payroll & Related Salaries 

- Management Salaries 

- Leasing Salaries 

- Maintenance Overtime / Inconvenience Wages Bonuses 

- Incentives Leasing Commissions Temporary Help Employer Related Payroll Expense

-ADM

Utilities expanded:

Utilities Electric 

- Occupied Electric 

- Common Area Electric 

- Vacant Water and Sewer Trash Removal Utility Billing / Recovery Service


Marketing expenses expanded:

Marketing Expenses Advertising 

- Signage Internet Advertising Other Advertising & Marketing

Administrative expenses elaborated:

Administrative Expenses 

Training and Education 

Career Apparel 

Postage and Freight 

Telephone 

Bank Charges and Fees 

Office Supplies 

Dispossessory Fees 

Mileage Reimbursement Expense 

Printing & Forms Copier Expense 

Computer Expense 

Answering Service Dues and Subscriptions 

Credit Fees 

Professional / Legal Fees 

Meals and Entertainment 

Travel Expense 

 Employee Screening 

Employee Recognition 

Overhead - Acctg & Admin Fees

Repairs and Maintanance expanded:

Repairs & Maintenance  

Other Interior Maintenance Exterior

- Painting Exterior 

- Doors and Windows Exterior 

- Carpentry Exterior- Lighting Exterior 

- Signage Repair 

Parking Lot Maintenance Tools & Supplies 

Other Exterior Maintenance Interior 

- Carpentry Interior 

- Cleaning Interior 

- Electrical Interior 

- Fixtures Interior 

- Flooring Interior 

- Hardware Interior 

- HVAC Interior 

- Paint Interior 

- Plumbing Interior 

- Window Coverings Interior 

- Appliance Repairs Turnkey Turnkey 

- Carpet Cleaning Turnkey 

- Cleaning Turnkey - Painting

Contracting expenses can include:

Contract Services 

Landscaping Maintenance 

Landscaping Other 

Equipment Rental and Maintenance 

Exterminating / Pest Control

Property taxes are straight forward, and grouped with insurance:

Property Taxes 

Property Taxes Total Property Taxes Insurance Property Insurance

Hope that helps. While this appears like a lot of detail, you will likely run into 90% of these in the first 6-12 months.

From the above, you should then be able to derive the following:

Total Operating Expenses 

Expense per Unit 

Net Operating Income (Loss) 

Net Operating lncome/(Cost) per Unit

Interest & Misc Expense (ie mortgage) 

Capital Expenses 

Net Income (Loss) 

Net lncome/(Cost) per Unit

Pay attention to utilities, it can grow into an alligator instead of a cash cow!

All the best,

Gautam

[email protected]

Hey Gretchen, 

Glad you found this list informative.  It's the real deal.

Gautam

Great list!!

It really gets detailed which will help anyone looking to buy these priorities. Also don't forget to factor in economies of scale!! Does it make sense to buy 4 4unit properties or 1 16 unit, just keep that in mind when looking for deals.

Thanks,

John

[email protected]

Medium screen shot 2015 08 11 at 5.23.17 pmJohn Cohen, JC Property Group Inc | 5162683500 | http://www.jcpropertygroupinc.com

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