Applying 50% rule to Apartments

[Jimmy H.]

So, i'm scouring Loopnet for commercial multi-family opportunities. I've noticed that many of the properties that list brief financials on loopnet have terrible overhead/operating expense ratios.

For example a huge 200-300 unit complex may have top line gross revenue of $2.7 mill but NOI of only $600k.

Or a 50 unit complex with $350k top line gross revenue and only $60k NOI.

Many variables go into this, I realize, and to truly find out you must do your due diligence on each specific property to see where the expenses are coming from.

My question is this - given that utilities included/not included is held equal for each property, do most variances in expenses on apartments arise from either poor management and deffered maintenance/old buildings.

This seems to be the two main variables. You can switch any complex to be utilities included, not included, or a mixture thereof. Holding that as a constant - do fluctuations arise basically from maintenance and management. And from that could I assume that a competent individual (hopefully that includes me lol) with due care should expect to be able to run almost any complex at the 50% rule?

Given a year or so to get good tenants, reduce turnover, and just manage the property well overall and get deffered maintenance issues in shape even replace HVAC's roofs ,etc if needed - is it reasonable to expect to be able to operate nearly any complex at or near 50% expense/overhead ratio?

It seems feasible to me, and if that's the case some of these apartment REO deal look really attractive. If a property gross's 350k and net's 65k and is selling at a current 9% CAP - that make sthe property worth $750k or so (which is the asking price). If i can improve operating efficency and get maintenance under control I think i can get the property NOI above 100k which makes the property worth $1m+.

Is it reasonable to believe you can get most any apartment complex to run at or close to the 50% rule. (again I know every property is different)

Thoughts?