Multifamily Expenses

[Derek Buescher]

I am looking to start investing in multifamily properties.  I have set up my proforma spreadsheet and I am pretty sure the calculations are correct. 

When I evaluate properties what are all the expenses associated with the property I want to make sure I am not leaving one out.  I have the following accounted for;

Real Estate Taxes

Insurance

Repairs/maintenance

Utilities

Advertising

Property management

Landscape

What if anything am I missing? 

Should I be including Reserves in the expenses? 

Thanks for the help. 

[Kevin Young]

@Derek Buescher you have a good list going. Off the top of my head, I'd suggest budgeting for payroll (if you're employing people). On bigger buildings, payroll expense is in addition to mgt fees. Accounting and legal fees should be included. evictions aren't cheap. Additionally, many cities require some type of business license or permits. On my Hawaii properties, I pay business tax (% of gross) in addition to property tax, which was a big miss I didn't know to factor in. Be sure to verify if there are additional business taxes in your area that need to be paid. Also, I didn't see vacancy on your list … be sure to factor that in as well.

Capex reserve is generally a below-the-line expense, that I factor above the line when I underwrite because its real money that needs to be set aside…and money out of your pocket at the end of the day. Sellers like to keep it below the line to boost NOI, but I factor it in when estimating my IRR. It then becomes a discussion/negotiation point.