What's a true OPEX ratio for a 10 to 15 units property?

Member since 2022 · 13 posts · 6 votes

Hi, I am a new investor and I'm contemplating buying a commercial property to hold. I've been using the general "50% of EGI" rule to analyze properties but I am curious what a "true" range is. I do have some questions on the general 50% rule too. Is there an assumed percentage already embedded there for property management, CapEx and repairs? Or would those be on top of the 50%? Please advise, thanks!

0 Reply

45 views

3 Replies

Jump to latestLatest

Sort by

Ty CouttsBusiness Member
Lender · Denver, CO · Member since 2022 · 467 posts · 230 votes
2y
Hello, Albert Lubin, the 50% rule is a general guideline used by real estate investors to estimate the operating expenses (OpEx) of a property as a percentage of Effective Gross Income (EGI). Effective Gross Income is the total potential rental income minus vacancy and credit loss. The 50% rule states that approximately 50% of EGI will typically be consumed by operating expenses.
While the 50% rule provides a quick estimate, actual expenses can vary widely depending on the property type, location, age, condition, tenant mix, and market conditions.
Here's an example: if a property generates $200,000 in EGI per year, the 50% rule suggests $100,000 would go towards operating expenses like taxes, insurance, utilities, and property management. However, an additional amount should be set aside for CapEx and repairs.

While the 50% rule provides a useful starting point, it’s essential to recognize that it primarily covers operating expenses and not CapEx or repairs. For a more accurate financial projection, factor in these additional expenses separately. Tailor your analysis to the specific property and market conditions to make informed investment decisions. I hope this finds you well!
[email protected]719-641-5169
Ty Coutts - Aslan Home Lending 544 Reviews
Website View Page
1 Reply
Russell BrazilBusiness Member
Moderator
Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
2y
35%
[email protected]301-893-4635 Podcast Guest on Show #192
District Invest Group545 Reviews
Website View Page
1 Reply
Albert Lubin
OP
Member since 2022 · 13 posts · 6 votes
2y
Quote from @Ty Coutts:

Hello, Albert Lubin, the 50% rule is a general guideline used by real estate investors to estimate the operating expenses (OpEx) of a property as a percentage of Effective Gross Income (EGI). Effective Gross Income is the total potential rental income minus vacancy and credit loss. The 50% rule states that approximately 50% of EGI will typically be consumed by operating expenses.
While the 50% rule provides a quick estimate, actual expenses can vary widely depending on the property type, location, age, condition, tenant mix, and market conditions.
Here's an example: if a property generates $200,000 in EGI per year, the 50% rule suggests $100,000 would go towards operating expenses like taxes, insurance, utilities, and property management. However, an additional amount should be set aside for CapEx and repairs.

While the 50% rule provides a useful starting point, it’s essential to recognize that it primarily covers operating expenses and not CapEx or repairs. For a more accurate financial projection, factor in these additional expenses separately. Tailor your analysis to the specific property and market conditions to make informed investment decisions. I hope this finds you well!

Thank you Ty! I appreciate it.
0 Reply

Join the conversationCreate a free account to reply, vote on answers and follow this thread.