35% Operating expenses for Apartment?

Question

Looking for an apartment around 10 units in the South Georgia area. Expenses seem to run 27% without mgmt and 37% with 10% mgmt for C class building. Do these numbers sound right? Currently owned/managed by a local company. The Broker uses 35% for all the apartments he has listed for this seller.

Ed Matson · Answer

Seems low for 10 units. Can you see the actuals? Deferred maintenance? Our Op Ex runs about 40-43% with management on well run 17 year old 46 unit complex.

Theo Hicks · Answer

Mid to high 40% for class A and B, 50% for C, and high 50% for D.

Greg Scully · Answer

@John Bosse - What are the expenses as $/unit?  That should be a fairly consistent number for each class within a sub market. A good property manager should be able to give you some guidance.  In Tennessee we see about $3800-4500 per unit for Class C.  I'd ask the broker what they are basing the 35% expenses on.  Nothing on our P&L is paid with a % of income...everything has a $ costs.

Bo Goebel · Answer

The cookie cutter expenses for a C class property is ~55%. I'm not saying they're lying, but they are not including all of the expenses of the property. Maybe the owner completes the pest control, maintenance, lawn care, etc. But those are expenses you would realize... so they must be accounted for.

Michael Le · Answer

That number would be low even for class A property. For class C I think seems way too low.

Hadar Orkibi · Answer

@John Bosse knowing the typical per unit operating cost per year is and should be part of your market research.

You should find that out, there are few ways to research that, asking few property managers and lenders would be good starting pints.

Lenders would be able to advise what they see when they underwrite deals and what they consider as benchmark when they underwrite a deal.

Over all 35% sounds very low, often we see mid to high 40%. In saying that it is really depending on the property, small building often run at lower cost. especially if they just been renovated. or to the contrary if the owner doesn't spend any money on the unit. ie. Slumlord.

I hope that helps.

John B. · Answer

Yes, I have the rent rolls and actuals for the past 2 years.

Ed Matson · Answer

Our building is Class B

35% Operating expenses for Apartment?

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