How to underwrite expenses in multi family deals

[Tim Chen]

There are some apartment owners that I meet with, that, for whatever reason, do not want to give me their expense information. When that happens, then I use the below information as a preliminary way to calculate their expenses. Sometimes, they'll give me information that sounds unrealistic as well, like a 12 unit building all two bedrooms, master metered water and the monthly water expense is $200. In those cases, I will also refer to this list to do my own underwriting because I want to be conservative in my calculations. Some owners will say to you "What the heck, this is way higher than what I operate at" and you can respond to them with. "That's great! I understand that you might be operating more optimally than what I have here, but I have put these numbers because these are the underwriting numbers that the lender is going to use." FYI, I work in Los Angeles county mainly in the San Gabriel Valley so some of these items may be very different from your respective cities. 

Property Taxes: 

1.08-1.25%

Confirm with the city

Direct Assessments: 

Contact City

Insurance: 

$.30-$.40 per sqft. of building

Utilities 

$45/unit/month - Water,Gas,and Electric Individually Metered

$75/unit/month - Mostly Studios + Small 1's

$85IunitImonth - Normal Unit Size

$90-$100funit/month - Large Units

Trash 

$100Imonth - 5-10 Units

$150Imonth - 10-20 Units

$250Imonth - 20-35 Units

$350Imonth - 35-50 Units

Pest Control 

$60/month - 5-10 Units

$100Imonth - 10-20 Units

$150/month - 20-35 Units

$200Imonth - 35-50 Units

Repairs&Maintenance 

15%of EGI - High Deferred Maintenance with Low Rents

10%of EGI - Deferred Maintenance

7.5%of EGI - Decent Shape Rent Control Asset

4-5%of EGI - Good Shape Rent Control+Non-Rent Control(1978-1999)

2-3%of EGI - Newer Construction(2000+)

Landscaping 

$100 per Month - Small Landscape

$150 per Month - Large Landscape

$200 per Month - Large Landscape Area in need of regular trimming

Pool 

$100-$200 per Month

On-Site Manager 

$30IunitImonth

Manager 

4-6% of EGI

Replacement Reserves 

$250 per Unit

Laundry Income 

$10/unit/month - Singles or Small Families(3-4)

$15-$20/unitImonth - Larger Families(5-6)

Vacancy Rate 

Based on REIS