Margin Per Apartment in Multi?

[Stephen Torti]

Hi BP, has anyone tracked their margin per apartment?  I've got some numbers from it and most are good but I'm not really sure what to compare it too.  Is 25% per apartment good, 50%, 15%?  

[Spencer Gray]

We look at it as an income/expense ratio, or expense / income ratio. The baseline is the 50% rule which states that as a very general rule your expenses will be 50% of your revenue. This number varies depending on economies of scale, vintage, property condition, etc. It's not uncommon for professional operators to be in the 35-40% range. But that is really only one part of the story and doesn't paint a very clear view of the project, but it is worth tracking on your model.

Speaking of which, you have a few line items out of order on your spreadsheet and a few key ones missing. For example, and maybe you are using gross totals, but you should start with a "Gross Potential Rent" (GPR) and then then deduct physical vacancy, loss to lease, bad debt, and concessions and then sum to GRP for "Net Rental Income," add "other income" from fees etc to create your net revenue.

Then add up all your expenses, excluding cap ex and debt service but including property taxes, payroll, contract services and property management fee.

Deduct expenses from net revenue and that will give you your NOI.

Now deduct cap ex, reserves and debt service to give you your "Cash Flow" after debt service. Take the nominal amount of cash flow, divide by the equity in the project to give you your cash on cash return.