Beginner Investor, Starting in Multi-Family (Louisville, KY) - Looking for ways to determine the EXPENSES associated with ownership

[Felix Sharpe]

Hello BP Community,

I am a new investor. My wife and I have been waiting for a multi-family property that works for us, between 2-4 units, to come onto the market. In addition to being new investors, we’re moving to a new state, so I’m not familiar with insurance costs, utility costs, etc. in this market. This is making it difficult to estimate the actual expenses for the property, which in turn, makes it difficult to determine potential cash flow or lack of cash flow. Income statements from sellers have only listed the rental income, not expenses. My questions are:

• 1. How can I accurately determine the actual expenses for a property including garbage, electric, insurance, sewage, etc. (I’m already familiar with looking up the tax assessments)
• 2. Seeking any general advice on being a new investor

• 3. Any general advice on multi-family specifically (just watched the BP webinar on the subject)

• 4. Any general advice on the Louisville, KY market

Thanks BP!

[Jon Alke]

You can ask for a seller's schedule E from their tax return, which should list ALL expenses associated with the property.  No guarantee that people don't fudge the numbers, but since the expenses decrease their tax burden if they are getting creative they would be overstating expenses, not under.  If they won't provide that you can ask for copies of recent utility bills.  Also, insurers could generally give you a reasonable quote based on size, age, location of property.  If a seller won't give you any actual tax info are alternate verification of expenses I would take it as a red flag.

For a new investor I would want to be very comfortable with knowing my units would be in demand.  My first property was close to a new medical school in an area with a relative lack of housing, so I knew students would drive plenty of demand.  If you are brand new to Louisville demand may be hard to gauge accurately.  But, as a new transplant to the area you know what you are looking for as a prospective tenant or buyer.  You could use how desirable you would find a unit as a benchmark for how tenants would view the property.