What should property mgt cost on a 32 unit/annually

Question

BPers,

I am analyzing my first apartment deal and find the PM costs suspect.  The sellers claim 6k a year for 32 units that bring 240k in rents.  Can this be true?

Does $620/door sound adequate for a 1.2mil asking price?

If water wasn't separated by unit how great a detractor is this?  Could I average the bill and charge each unit a equal share?

Property is located in NE florida.

Sorry for these rookie questions as I am just getting started considering apartments.

Blair G

Mike Dymski · Answer

You are correct, this is too low.  3rd party management will vary by market and portfolio.  You can get a quick assessment by calling management companies in your area to find out their fee structure.  I pay 8% with no lease up fees for 29 units.  The fee itself is not the true cost of management for me...the true cost is in their management of vacancy and maintenance costs.

"If water wasn't separated by unit how great a detractor is this?  Could I average the bill and charge each unit a equal share?"

Yes, you can ratio bill utilities if that is customary in your market and the utility plus current rent will not exceed the market rent.  Check out RUBS as others have mentioned.  This can be a good way to increase the value of the property as the NOI determines the value.

There are some good podcasts on apartments on BP, Jake and Gino, Kevin Bupp, Michael Blank and Old Capital that are entertaining, education and quick studies.  Good luck and keep asking questions.

Douglass Benson · Answer

Marc C - I too am a buy and hold rental investor and am kind of laughing at your comment.  If a guy told you that you weren't ready to invest in multi-family because you didn't know what RUBS was, should that stop you from moving forward?

Please don't take any offense but I have run across too many people still reading books and taking classes who aren't in the game because there is another book just printed and another class just starting in 30 minutes...

I hope all is well for you in New Mexico and I sincerely mean that!  Take care.

Account Closed · Answer

6k on 240k gross gives 2.5% - cheap, I'd double it at least. Maybe even 6%. Depends on what services the owners are receiving, though.

What is the $620/door figure you ask about? Purchase price at 1.2M gives 37,5 per unit.

On water, figure out how the units are supplied. What type of buildings are they? You may find that each stack shares water lines, eliminating the ability to truly submeter. This leaves RUBS, which is certainly feasible though you and/or your tenants will pay a third party for the privilege. One of our jobs in Jacksonville FL had flat rate RUBS when we purchased it which we left in place and we recoup ~75% of our water costs. You can likely increase that using true RUBS on your actual bill.

I would not charge each unit an equal share unless they are all the same type (1br,2br,etc) if using flat rate RUBS, and if you are dynamically allocating RUBS it should be indexed to style and occupancy. A company like NWP can assist with that.

And finally, I'm not sure about Levi's estimated turnover. We have much larger jobs, but it averages out to around 40% over the entire portfolio, and our Jacksonville jobs are north of that. I don't believe you will be that high on a 32 unit job; just something to keep in mind.

Blair G. · Answer

@Marc C. Thanks for the advice.  As I mentioned in my original post I am new to muti family which is why I am reaching out to this community.  No need to try to scare off a newbie.  Just like your picture in front of that airplane, because you haven't landed on an aircraft carrier doesn't mean you shouldn't as questions about flying IFR NDB approaches to rwys on atolls in the South Pacific. Cheers.

Marc C. · Answer

Not to be harsh, but if you don't know what RUBS is, you're under-educated for multifamily investing. You have a lot of bookwork and homework to do before you proceed. Suggest getting a partner/mentor.

Account Closed · Answer

I think I have seen the opportunity you are discussing on Loopnet.  I have done one apartment deal (though not in Jacksonville yet) I'd be happy to talk to you a bit about some of the ins/outs I have learned.

Blair G. · Answer

Account Closed I have never heard of RUBS.  Like I mentioned this is my first foray into apartments and I have a lot to learn. 6% for management seems reasonable.  Regarding the $620/door, I was asking whether there is a rule for purchase price and what to expect for rents per door.  This property is listed at $1.2 mil.  I don't assume the simplicity of the 1-2% rule applies to apartments.  Thanks for your help.  Off to google RUBS.

Account Closed · Answer

@Blair G. Rents are what the market will bear. What are your rent comps?

Blair G. · Answer

Levi T. CL and placement commission for managing property...never though of that.  I would assume an exclusive contract for placement between myself and the agent would be required to make managing attractive on their end.

John Casmon · Answer

@Blair G. When analyzing apartments, you should use your own numbers and expense projections. Most PM firms charge between 5-10%, but also have placement fees, maintenance fees, etc. Apartment values are not calculated by a 1-2% rule and rent per door doesn't help much either. You need to understand the market cap rate and determine the NOI to arrive at the value.

What should property mgt cost on a 32 unit/annually

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