Posted by ray@lcorn on November 19, 2002 at 17:26:42:
Dan,
Let me say first that I hate “rules of thumb” for any use other than the rough evaluation of a property. To get a true valuation analysis you have to have true operating numbers. If you’ve got the true numbers, then you don’t have to estimate the past expenses because they have already occurred. That said, you don’t always get the true numbers because they sometimes don’t exist.
To project future operations for your own uses, not to value the property, you do have to plug in estimates. I use the historical information plus an allowance for price increases, usually about 3% per year. For vacancy and delinquincy loss I use 10% for average properties. (For more on my thoughts about this see my post below titled “Are You Sure?” http://www.creonline.com/commercial-real-estate/wwwboard5/messages/7178.html
Management expense is a market driven number. Whatever is prevalent in your market is what to use. For reserves for replacement, lenders have a range for multi-family properties that depends on condition, age and use. That could be anywhere from $200-$300 per unit per year, but on small projects this is probably not a good yardstick. Better to assess the deferred maintenance needs of the property and budget out what it will take to remedy the problems over whatever period the condition warrants.
ray