What % should expenses be in relation to gross rents for multifam
What % should expenses be in relation to gross rents for multifamily properties.
For example: While evaluating a deal, for the sake of easy math, a multifamily property has gross rents of $100,000. The Actual or Pro Forma states total expenses for that property to be $25,000 which represents 25% of gross revenue. My question is if there is a general way to spot an underestimation of expenses. In general, should the total expenses be 20%, 25%, 30% or more of gross rents.
All input is greatly appreciated!
Most Popular Reply
I use 50% as my working number and I think it represents my average. Things will happen, or not, to put the real experience over or under. This reflects the famed 1% rule, which I find is right more often than it is wrong. In practice 1% is inadequate for cash flow if you take debt service into account there you will need 1.35-1.5% to have some amount left over for yourself when all is said and done. All the best!