Analyzing a Deal for Profitability

[Mormon Redd]

I am trying to get in to multi-family apartment investing (5+ units) and have been searching for a property that I could reposition. In a training program I did I was taught to estimate costs at 50% of gross income when analyzing the financials, but after looking through dozens of marketing packages I have only found 3 where reported expenses even approach 40% and most are around 30% or closer to 20% of the operating income. Is this 50% being too conservative? Those of you who have owned multi-family, what percent of operating income have your expenses been?

[Michael Badin]

Don't just accept the pro forma numbers. Often times if you are buying a property with deferred maintenance that means their expenses were lower than they should have been, and thus their pro forma expense numbers are based on faulty information. You should not discount it entirely but you do need to dig deeper.