All Forum Posts by: Eric Lopez

Hi Eric,

Great question—estimating operating expenses can definitely be tricky, especially for items like maintenance, CapEx, and make-ready costs that vary widely between properties. Here are a few strategies that might help:

1. - Leverage Industry Benchmarks: Many investors use a percentage of gross rental income as a quick estimate for operating expenses. For multifamily properties, this is often around 40-50%, but it can vary depending on the property's condition, location, and age.
2. - Analyze Comparable Properties: If you’re working in a specific market, reach out to other landlords or property managers with similar assets. They may be willing to share insights about their expenses, which can serve as a baseline for your estimates.
3. - Build Relationships with Vendors: Getting quotes from local contractors or vendors for common maintenance or repair tasks can give you a clearer picture of recurring costs. For example, ask about typical costs for HVAC repairs, plumbing issues, or roof work.
4. - Use Historical Data: If the seller has accurate financials, their expense data can be invaluable. Just make sure to scrutinize it for any underreported items or inconsistencies.
5. - Set Conservative Estimates: For CapEx, maintenance, and make-ready costs, consider building in a buffer to account for unexpected expenses. For example:
   • CapEx: $250-300 per unit per year for older properties, adjusted based on age and condition.
   • Maintenance: $500-800 per unit per year, depending on property class and tenant turnover.
   • Make-Ready Costs: $1,000-2,000 per unit for turnover, depending on the scope of work required.
6. Resources and Tools: Utilize tools like BiggerPockets’ Pro Calculator or other underwriting spreadsheets that have built-in assumptions for these categories. They can help you cross-check your estimates.

It’s always better to overestimate expenses than to underestimate and face a shortfall later. Hope this helps, and good luck with your next deal!

Eric,

Without going into too much detail on each line item, at first I use my back of the napkin method with a 40-50% expense ratio. A lot of lenders used to apply 35% for expenses, but in the last several years, the numbers for supplies, labor, utilities, taxes, etc… have increased significantly.

Also take into account the age, occupancy and how has the property been maintained, this will affect the expenses too

Hey Eric!

Great question! Accurately estimating expenses like maintenance, CapEx, and make-ready costs is a common challenge, especially for new or prospective investment properties. While there's no perfect formula, there are a few methods you can use to get as close as possible:

For maintenance and repairs, a good rule of thumb is to budget 1%–2% of the property’s value annually. For example, a $200,000 property might require $2,000–$4,000 per year. This can vary based on the property’s age, condition, and type, so adjust accordingly. If it’s an older property or has deferred maintenance, you might want to lean toward the higher end.

When it comes to CapEx (capital expenditures), planning for major replacements like roofs, HVAC systems, and appliances is key. Many investors budget an additional 5%–10% of gross rental income for CapEx, though this too depends on the property's condition and the age of major systems. Conducting a thorough property inspection or consulting a contractor can help identify potential large-ticket items you might need to replace soon.

For make-ready costs, you can look at local averages for common turnover tasks like repainting, carpet cleaning, or minor repairs. A good ballpark is $1,000–$2,500 per unit, but this depends heavily on how extensive the turnover is and whether you’re self-managing or hiring contractors.

If you’re looking for more precision, connecting with local property managers or contractors can provide insight into typical costs for properties like yours in the area. They’re often familiar with market-specific expenses and can help validate your estimates.

Lastly, as you analyze more deals, keep track of actual expenses on your properties or properties you’ve researched. Over time, you’ll build a more accurate dataset tailored to your portfolio.

Hope this helps—getting these numbers right is an ongoing process, and you’re asking all the right questions to set yourself up for success!

Interview a couple of agents from afar, and see their intel relative to what you're trying to complete. Once you get it down, go visit the city and check out properties with them. 

I've vetted and expelled lots of agents cause lots think they are "investor" friendly, when they don't have a conviction and follow trends. Including agents on here, some are a hot pile of garbage if not most. And most will always try to figure out a way to get you to get the deal done even at your detriment. Stay firm in your views & conviction, but absolutely visit the area and do your own diligence.

Contractor wise you want to look at places that hold them accountable(review boards, etc.), and be prepared to protect yourself financially and liability wise with good layers. If it's a large scale project you absolutely want to show your face a few times so they know who they are dealing with. If it's not a huge deal, but a smaller or mid-tier one then for sure introduce yourself physically and have a vetted PM monitor it. The job is tell you the facts not their opinions so make sure everything is documented.

@Eric Lopez

Happy to provide resources for Columbus/Cleveland OH that my clients have had success with

Hey Eric,

Since you are investing OOS, my recommendation is for you to start connecting with a local agent. Then, they will help you find and connect with the team that you will be needing along the way. I usually connect my investors with my contractors here in Ohio. Let me know how can I help!

 Welcome aboard Eric.

 Always a huge challenge for remote investors. Find yourself an investment friendly agent- they will have an entire team in place that you can connect with and leverage. 

 Location ?  Your GC, OK so your next question, how do I get a GC LOL. We'll all you need to do is connect with those doing deals in that city. I live in FL and do all my biz  in Cleveland and starting to ramp up Jackson MS. 

Good luck