Expense Forecasting... Lessons learned from the field

4 Replies

Hello everyone, 

After some hefty pest control expenses from several building that we manage, we realized that pest control was not a line item we had when running our annual expense projections on a building. However, it is significantly impacting cash flow for some of our clients. 

We're in MA and have noticed a range of $680-950+/year for pest control in multifamily buildings in the area. Heads up to any investors running numbers and wondering what could come up in that "misc" expense category. Pest control is one of them. Going forward, we'll be adding this to our expense projections as its own line. 

What have other rental property investors noticed as unexpected expenses that you weren't aware of before investing/managing property? 

Thanks to all.

@Richard Cole

One issue that you can run into pretty easily is accurately forecasting payroll. T-12 payroll numbers are almost useless if you are picking up a stable asset and executing a value add strategy. It's helpful to work with your Property Management Company in order to break down the exact amount of staff needed to service your property through the various stages of a value add strategy, to assign the appropriate estimated hours worked for each of those employees and lastly the estimated dollar per hour wage that each of those employees will receive throughout the hold period.

It's so easy to just take an average number for your market, such as $1,200 per door in Market X, but not actually figure out what makes up that $1,200 per door on an ongoing basis as it relates to your specific market and the specific type of project that you will be executing.  

Yeah pest control, particularly squirrels getting into our buildings in Northern NH has been an expense that we had not accounted for when purchasing the properties. It's amazing how much it can cost to get rid of squirrels and other rodents as they migrate indoors during the colder months. 

The other thing has been that the property insurance was more than what the previous owners had been paying. Apparently they hadn't had an inspection in a while and had bare bones coverage. Then With the deferred maintenance that build up during the sale process, the properties didn't look too good during the fresh rounds of insurance inspections. That resulted in to pay higher premiums at renewal and a mad rush to fix things to satisfy the insurance company to avoid cancellation. We're planning to consolidate all properties into Vermont Mutual once we get the properties up to date. That should reduce the cost of insurance significantly. 

I've got multiple properties insured with Vermont Mutual. They always seem to come do an inspection and jack up the rate another $200 even though I fix the minor repairs they seem necessary. Flood insurance is another killer that is often twice what the previous owner paid.

Not necessarily an unexpected cost, but highly variable is plowing. I have had years where its $400 for the season and others where its $1800 because of heavy repeated snowfall. 

We got hit with a $1700 bill to heat treat bedbugs after purchasing a new property. Never had done that before, but I am now considering adding a pest control line item as quarterly- or semi-annual inspections.  

Also learned this lesson the hard way! One of our units has cockroaches coming in from an abandoned home next door. Such a pain!