What are you underwriting expenses?

Question

Hi Everyone,

I wanted to get an idea of what everyone is using as a per door expense figure?  I know that smaller properties are going to run much less, so I wanted to choose 50 units  and 100 units as sizes, and I understand cities will vary.

We are running between 4000-4500 per door in operating expenses in Knoxville for 100+units.

This is the one area where all investors get tripped up. When we bought our first large complex, we were running at 2900 per unit. When we went to refi, the bank underwrote the expenses at 3500 per unit, and they ended up being correct.

If we go into a deal with incorrect expenses, it will blow up the entire deal.  Any answers would be greatly appreciated.  Looking to share with our community and continue to have them underwrite conservatively.  Good luck in this market, but you have to  stick to your guns.

thanks for taking the time to respond

Gino

Gino Barbaro · Answer

@Bruce Petersen

Thanks for your response Bruce.  I find it interesting that very few investors dive into actual expenses and most brokers are underwriting these deals at 2500-3000 per unit, which makes NOI look great, but when you take over, you have no shot of making money.

I found this article after posting the question. I hope this is helpful

Gino

https://www.naahq.org/news-publications/units/augu...

Bruce Petersen · Answer

There is no real answer for me, all properties are different.

In Austin my 120 unit is $5300 and around the corner my 192 is $5700. In San Antonio (1 1/2 hours away) our 256 is $5300 but our 292 unit 4 miles away is only $4800.

Taxes are different in different cities, states and even neighborhoods. Same with utilities, each city we are in is wildly different.

Insurance, are you in a flood plain, hurricane insurance?

Class of property matter for staffing, A+ will have a totally different need than a C. Could be as much as $500-600 difference right there alone.

Best answer I can give is $4800-5500 and that's a really big spread.

I don't use a "number". I dissect the financials and build a proforma take-over budget on every project I consider.

Probably wanted a quick one line answer and not digging my response but to me it's more involved than that.

I hope this helps with your community.