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

    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. 

    Colleen F.

      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. 

      Colleen F.

        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

        Anthony Gayden

          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]

          Fire Extinguisher inspections:  1 year

          Fire Extinguisher inspections:  5 year re-build/inspections

          These caught me off guard.  -J.

          Join the Largest Real Estate Investing Community

          Basic membership is free, forever.