What’s a Rule of thumb?

Question

What’s a rule of thumb for Utilities (Water and Sewage, Electric, Gas) per door number? If there is a such a rule? I’m aware of the RUBS system. If you don’t have the historical from last year, can we use a number per door when underwriting the deal as a ballpark figure until you get the last year and this year historical?

Todd Dexheimer · Answer

That really depends on the market, property age, type of systems. Talk with other property owners or better yet, your property manager to get what those expenses for your property should be.

To some extent you can reduce those expenses through low flow fixtures, water monitoring and LED lighting

Nathan Trunfio · Answer

There are certainly a number of variables that will effect the utility expense assumptions for multifamily deals. How big the community/asset is, size of units, vintage of asset, age/condition of the mechanicals, quality of construction, tenant base, amenities and size of common areas, amount of vacant units, who pays each utility VS RUBS, etc.

Most of the time, the biggest factor and variable is the market, as each market is very different. If you can't get financials/expenses on the subject property, I'd try to find information on any relevant comps. That will give you a good indication of what you could assume.  You could also call some of the local multifamily investment sales experts, they're great resources for identifying utility expense assumptions.

Also, in multifamily, we look at a per door per year basis for all expenses. Usually total operating expenses, conservatively, will come to $4-$6k per door (this is for larger B and C class assets, 100+ units - Again, this is conservative, and there's a number of variables to consider.) You can also look at expenses in regards to a % of OpEx.  Typically OpEx varies between 35%-50% depending on many of the same variables above. Utilities typically take up 15-30% of total expenses.

Hope this helps!

Dexter Harris · Answer

THANKS, @ERIKWHITING,@NATHAN TRUNFIO, AND @TODDDEXHEIMER

Erik W. · Answer

It depends on more factors than can be usefully discussed here.  I've seen a 1 bedroom older house run up to $500 per month.  I've seen 5 bedroom houses at $100.  Depends on where you set the t-stat and how well insulated the home is....and if you have teenagers who take long showers.  It also depends on your local utility company rates, which vary widely.  Here in SW Missouri, we pay less per kWH for electricity than 90% of the rest of the country.  If you live on the Left Coast,most likely you'll pay 3-4x what we do for compliance with all the ordinances, taxes, and regs.  Your best bet is for each purchase you make to contact the utility company and get a 2 year average.  Or ask the Seller to see their Schedule E: that's the place they get to save on taxes by giving their true utility costs, so they have little incentive to lie and make them look smaller.  Most likely, if they lie, it will go the other direction and make them look bigger, and you can use high cost of utilities as a bargaining tool.

What’s a Rule of thumb?

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