What are realistic expense figures for 20 unit property?

Question

Hi all,

I am looking at a deal that which I think is managed terribly, and evidently the seller recently fired its property manager. It's 23 unit multi-floor complex and its expenses for the year ending May 2021 is roughly 2700/door. This includes make ready repairs, WO, cleaning, utilities, landscaping, and capex (not much) etc. I was under the impression that multifamily properties expenses should be way down. What are some realistic expense figures that I can plug into my proforma to evaluate this property assuming it's properly managed? It's roughly 60 years old and is considered a B-/B property in the area.

Thank you all.

Erickson Sainval · Answer

If your looking for a percentage, 50-55% would be good for your expense ratio.

Steven Nguyen · Answer

My  greatest resources are my mentor (20 + years of apartment experience),property managers who understand the typical expense per unit, and mortgage brokers.  It's always better to "overestimate" your expenses to be conservative during due diligence.  Worse case you were wrong and have better cash flow.  I tend to fall in love with my deals, but my mentor keeps me grounded and realistic.

Usually, before selling a property, the sellers will lower their expenses intentionally to increase their NOI which inflates their property values.  Property value = NOI/Cap Rate.

Nick Robinson · Answer

@Allen Li

A lot of this depends on the building and location. When your looking at the T-12 be careful a lot of sellers will but normal expenses in as capex to make their expenses look better.  If expenses are low plan on having a lot of deferred maintenance.

Allen L. · Answer

Hi Steve! The property that I’m looking at is master metered but $4000 seems really high for a 1 or 2 bedrooms which I assume is what you’re looking at. How did you arrive at that number and is it what you use to budget per unit maintenance and capex every year?

Mason Hickman · Answer

@Allen Li

Taxes are going to be the biggest factor that can be far different property to property across state lines.

Steven Nguyen · Answer

Hi Allen,

I mostly look in OK and AL for multi-family (5-100 units), but I assume at least $3000/door for due diligence on actual and proforma.  If it is a master metered property and owner pays all utilities, it gets closer to $4000-$4500/door.

Whenever a new owner takes over, tenants tend bring up issues that have been deferred.

I hope this helps.

Steven