Expenses Per Unit

8 Replies

Does anyone use rules of thumb for estimating expenses per unit for multi-family property?  I have recently been told:

Owner paid utilities:  4K-4.5K Door

Tenant paid utilities:  3K - 3.5K Door

Do any owners have actuals per door they can share?

I'm in Central Texas.


How many doors are you talking a 4 unit or a 100 unit?? They operate differently with expenses.

For above 5 units a typical rule of thumb with landlord paid utility  is 60% of gross expected income.

So say 100 units at 700 in rent per door is 70,000 monthly X 12 = 840,000 gross expected a year for income.

840,000 X .40 ( 60% costs) = 336,000 expected annual NOI

840,000 - 336,000 = 504,000 annual  expected expenses  / 100 doors = 5,040 a door per year and / 12 = 420 / month. 

This is with no deferred immediate capex to the property which would come off the purchase price.

Get a quote on insurance and estimate the worst case on the property taxes.  Those are the biggest hitters on your expenses in Texas.

How do you know how much the tenants pay for utilities?  Are the units individually metered and paid by the tenants direct to the utility company?

You can probably figure something out for maintenance, advertising, admin, management, etc...

Your utilities probably include water, sewer, trash, and common area electric.  Perhaps there is gas in there as well.

My data is old as I have not bought in Texas in a number of years.  I used to use $4300 per unit per year on a standard 80's construction building with standard landscaping.  I would use $300 per unit per year for capital improvements if the building was in decent shape from the start. 

@Taylor Vaughn  

I generally don't use any rules of thumb when evaluating expenses.  It varies so much by condition of the property that I generally don't like to guess.

The general consensus here is 50% for expense when you don't pay utilities, 60% when you do.

I look at properties the following way:

2% "rule"

The get actual numbers on the following expenses:


Sewer and Water




Cap Ex and Ops (my personal minimum is $150/roof/month)


Mgmt Fee - as a % (general consensus here on BP is 10%. include it even if you think you are going to self manage)

Vacancy- as a %. (8% represents 1 vacant month/unit/year)

I have found Joel's example to be true with the properties I manage.  The smallest is 23 units and overall is 320 units, but I aim for about 55% expenses.  I also agree with Aaron, every property is different so you should approach it that way.  We use a model to plug all expenses in rather than guess.

10% is a very high management fee for larger properties, I would be thrilled to manage for you!  In Minnesota it is usually in the 5% range and sometimes 3.8% for larger properties.  Of course this is for 45 units plus...with the 3.8% typical when you have over 350 or more units....still a lot of money either way :-).   On smaller assets I see a lot of door fees and first month rent fees vs. percentages, so I could imagine they exceed or meet 10% in many cases.

For Multifamily, here is how I break down my underwriting pro-forma and the expense cost rules of thumb I use:

Annual Income:

+Gross Potential Rents (Market Rate x Units x 12 months)

- Concessions (depends on the market, but I try to limit to 3% GPR)

- Economic Vacancy (physical vacancy + bad debt + loss to lease)

= Total Rental Income

+ Utility Income (based on past RUBs history or the per door flat fees)

+ Other Income Items (Laundry, revenue share contracts, late fees, app fees, etc.)

= Total Income

Annual Expenses:

+ RE Taxes (usually use 3% increase over last tax bill, but make sure your area won't reassess immediately upon the sale at the new price, which could drastically increase the taxes)

+ Insurance (my rate is about $200/door....yours will be different, talk to your agent)

+ Management Fee (3-5% depending on size and company used)

+ Administrative costs ($150/door)

+ Payroll ($900/door, but the smaller the complex, the higher this cost usually goes)

+ Marketing ($125/door, again it depends on the property size and market)

+ Utilities (usually do a 3-4% increase over the past 12 month total)

+ Repairs/Turns/Contract Services/any maintenance (depends on the age, I buy late 60's to early 70's vintage stuff and usually spend $750-800/unit....this goes down as the property is newer or renovated)

+ Reserves (this will depend on your financing, but I place it above the NOI line here because if the bank requires it, it is an upfront expense monthly....usually $250-350/door)

= Total Expenses

NOI = Total Income - Total Expenses

This generally works well for properties 20+, but might not work so well for smaller complexes. Hopefully this answers your questions on how to look at your expenses.

Thanks for all the answers!  I am looking at a 38 unit complex in Central Texas that has been mismanaged for the last few years.  It's 50% vacant and the operating statement I got showed 900/unit in expenses so I am trying to estimate as best as possible.  Each input is greatly appreciated!

This is such a great topic, and you've gotten some terrifc answers; my favorite being @Mike B.  !  I generally use the 50% rule initially and adjust based on all available data.  I just recently bought two 4-plexes and am seasoning the properties now.  Fingers are crossed that the analysis holds!  Obviously, these are closer to SFRs than the multi's others have mentioned.  I hope for more responses! 

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