Posted by Mike on November 26, 2008 at 09:08:01:
Another is on a per-door basis. $2600 per door per year is what is common here. I’m looking at one right now where the expense ratio is only 21%. Why? Because its in a high rent area(about twice the norm) Yet the expenses are still normal. If the rents were normal (750 vs 1500) then the expense ratio would be at 42%. This is why a per door comparision is valid and should be used in conjuntion with a standard expense ratio.
Expenses Ratio? (Multi-Family Analysis) - Posted by Brian McAvoy
Posted by Brian McAvoy on November 25, 2008 at 07:33:04:
I need help and feedback regarding the total expenses ratios that I should use for analysis on apartment buildings 25 units and above.
I have received previous advice that has been all over the map - from a low of 35% to a high of 60%. My target market is Chattanooga, TN where the cost of living (and rents) are quite reasonable and about 10% below national averages.
For clarity, the total expenses ratio would be expressed either as a % of gross scheduled rents or a % of actual collected rents.
Any feedback is greatly appreciated - the more detailed the better!!
Brian.
Re: Expenses Ratio? (Multi-Family Analysis) - Posted by SteveO
Posted by SteveO on December 23, 2008 at 21:20:54:
Expense ratios are not a good tool. Insurance, property taxes, advertising, etc… are all going to be different. Some properties have an average rent of $600, others may be $900. Cost per unit is a better generalization. It is really important to have a handle on what it would take you to run a property correctly.
I don’t put a lot of effort into expense reduction. It is better for me to figure out how to efficiently provide a great living environment for my residents.
Re: Expenses Ratio? (Multi-Family Analysis) - Posted by Steve
Posted by Steve on December 03, 2008 at 16:01:59:
Talk to some property managers in the area and try to get a better
local handle on what the expense ratio is. Nation wide I would say its
closer to 45% on the low end (not 35%) and can go as high as 60% in
some places maybe. I just figure 50% as a rough guide to any initial
look and then I look at more specifics of the property in question. Just
because a particular property is higher or lower than the local average
does not necessarily mean its a deal breaker, but you DO need an
explanation for why it is so.
If they are reporting 35%, then beware of deferred maintenence that
may cost you more in the future. If they are reporting 60%, then find
out why, could tell you about a problem with the property that needs
to be addressed or could also show you a value play.
Too high is less of a problem then too low because if they are reporting
too high then at least the NOI figure will be hopefully accurate and you
won’t be over paying for the property. On the otherhand if they are
underestimating expenses, then they are probably trying to make the
NOI look higher than it really is, and you may overpay on the deal and
lose lots of money down the road.
VERIFY EVERYTHING. Look for answers.