Hello, I am working on running some numbers for a small MF property and I have been out of the game for a while. Does anyone on here have any good advice for estimates on management, maintenance, electric, water, insurance and anything else I could be missing? Thank you for any guidance.

Take your average rent cash flows for all units, multiply by 50 and then 12 to annualize it; then 50% of that in operating costs/expenses, and that should be a reasonable calculation to project on and make an investment decision on. No less than 40% for sure. Interested to see/hear other opinions as well though.

Falcon10 said:

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Hello, I am working on running some numbers for a small MF property and I have been out of the game for a while. Does anyone on here have any good advice for estimates on management, maintenance, electric, water, insurance and anything else I could be missing? Thank you for any guidance.

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I have been buying duplexes beginning in 2003. If you haven't gone to this website you should: www.biggerpockets.com

You don't need the premium side of the website, you can find all you need on the free side.

What someone described earlier was the the 50% rule.

Learn about the 1% rule as that is what I used most to start my analysis. It is discussed on BiggerPockets.

Back to your Specific question:

Management: I have always done it myself. Not hard to do and saves you a lot of $$$$$. Typical property management will run 10-8% of revenue collected, but in reality it will end up being more and they will never do as well as what you can do yourself!

Maintenance: Usually 5-8% Book answer! But real world for me, I put 20% down when I buy and never dip into my own funds again.............EVER!
Usually my positive cash flow is 500-700 each month. I save up 10k (usually takes a year) before I do anything else and use it for maintenance reserve, then I use the positive cash flow in years 2-14 to pay down the 30 yr note. After 15 years I own the property outright!

Here is how you save the first 10k. Keep example simple: Each side rents for $1000. First month of owner ship you have no mortgage payment, but you have the rents and deposits. Deposit is same as rent. So day one you start out with 4k in your maintenance reserve account. The next 12 months (13 months total) you are saving $500 a month or $6k. That brings your maintenance kitty to 10k after one year. Use it to pay expenses and replenish as needed.

Utilities (electric and water): My duplexes have separate meters and tenants pay those cost.

Insurance: About $150 a month for typical duplex $150-250k

Just don't use this guidance for Austin area, the duplexes don't cash flow with typical long term leases!

Cheers!

I am in multi-family insurance and call tell you every single pro-forma I have seen in the last 2 years greatly underestimates the insurance. Property, GL, and umbrella rates have all gone up quite a bit in the last 2 years as we are in an extremely hard market with more and more carriers pulling out of habitational insurance completely. If you want me to take a look, I would be happy to give you a napkin quote/estimate. PM me here or email is username at gmail.

This is a decent answer.. but there's a pretty significant difference between duplexes and 50-unit apartment complexes.

Here's one at my company with certain items netted out that wouldn't apply to a small private owner. Keep in mind that we have 4,000 units of scale in the same city as this deal, have in house management that is cheaper than 3rd party, have an umbrella insurance policy that spreads across the portfolio, have expensive tax consultants who keep our taxes down, have 3 full time employees with benefits on site ,and have items within payroll, admin, marketing, and R&M that are indicative of a large company structure and not a mom & pop.

I couldn't show it here, but make sure you are considering the total cost, per unit cost, and per SF cost. Maintenance and make ready will cost more per unit if you average big units. Contract services will be higher if you have a large plot of land, lots of landscaping, water features, extra programs like valet trash, etc. A 50 unit deal will cost more per unit for almost every item on here, but should be cheaper in total $.

It's all fairly simple at the same time as it's incredibly detailed and nuanced.

Yep, and this has expense categories (payroll, mgmt, admin) that would not be as significant in their percentage for a 50 unit - the 50% rule is conservative and hitting 40% is reasonable as the low end of the range you are projecting.

I've used the 50% rule on all of our SFH rentals and it's kept me from assuming too much and paying too much at the outset.

Thanks everyone for the responses. These are all very helpful. Unfortunately this specific project was constrained by land and construction costs so we passed on the location. Hopefully we will find something to invest in soon.

45-55% expenses depending on average rents and who pays utilities.

I'd take gross rents x 12 x .5 = NOI.

Then shoot for a 1.5 DSCR on the terms my lender gave me and make that my offer.

Or just make a 2% offer from the jump like I normally do.