Rental Property Investor · Philadelphia, PA · Member since 2015 · 213 posts · 160 votes
Hi BP Community!
I'm in the process of analyzing some deals and would like to ask current owners what sort of operating expenses they have? I know their is taxes, insurance, landscaping (if not doing it yourself), pest control (I suppose I could have tenant cover this one), and utlities (will definitely pass this on to the tenant). What are other recurring monthly operating expenses are there?
I realize I should account for basic repairs like sinks/toilets/etc.
Finally, unrelated, but what system do you use to collect rent from your tenants?
Lender · Playa del Carmen, México · Member since 2014 · 2k+ posts · 1k+ votes
9y
Hi @Charles Kennedy. You've already mentioned the main ones, but I'd add management, legal and vacancy. I'd recommend you include management expense even if you plan to self-manage. Legal includes expenses related to rent non-payment, like dispossessory filings and court representation. And, lastly, even though vacancy doesn't show up as a specific billable expense on your books, the resulting increase in costs are very real and can eat you alive!
For rent collection, we really like ACH via PayYourRent.com!
Lender · Playa del Carmen, México · Member since 2014 · 2k+ posts · 1k+ votes
9y
Hi @Charles Kennedy. You've already mentioned the main ones, but I'd add management, legal and vacancy. I'd recommend you include management expense even if you plan to self-manage. Legal includes expenses related to rent non-payment, like dispossessory filings and court representation. And, lastly, even though vacancy doesn't show up as a specific billable expense on your books, the resulting increase in costs are very real and can eat you alive!
For rent collection, we really like ACH via PayYourRent.com!
Thanks! I always include vacancy in my proformas, but I'm typically looking at commercial deals. What do you put in your proforma for a SFR or duplex? 5% just to be conservative? Thanks for the management and legal expenses! I forgot about those.
Property Manager · Pleasanton, CA · Member since 2015 · 97 posts · 65 votes
9y
Check Marcus & Millichap and IRR.com reports for an estimate of vacancy rate in your area. Vacancy for residential units varies greatly between markets, sometimes even within the same region, so if you don't have a satisfactory number from their reports, try calling local property management companies and asking them.
You said you're looking at commercial - what kind of commercial do you mean? Large multi-family? Retail? Office space? Storage units? The type of asset you're looking at is incredibly important in determining the proforma expenses to consider. Can you give us more information on what type of asset you're looking at so we can give you better guidance instead of a shotgun approach?
Office expenses, vehicle, utilities when vacant, advertising, legal, accounting, management, touch up at turnover, evictions (including non payment of rent), tenant damage (not covered or collected from deposit), ongoing & capitol expenses, (plumbing, electrical, flooring, windows, hot water, furnace, appliances, paint, exterior), property taxes, insurance, income taxes, deductible on insurance claims, etc.