Underwriting assumptions for smaller multifamilies

[Carmela Gonzales]

Hello everyone. Looking to acquire a small apartment building, Class C, 10-40 units. I am actively analyzing deals on and off market to gain more experience. We plan to buy and hold for at least 10 years.

Obviously I try to verify everything thru the T12, rent rolls, etc but as a quick back of the envelope calculation I use 5% for vacancy, 8% for R&M, 8% for CapEx, 10% for management, 250 per unit for insurance. We are in Ohio, and most apartments here were built in the late 60s or early to mid 70's. Should I be more conservative in these assumptions? Thank you!

[Chase Louderback]

Hi @Carmela Gonzales,

Unfortunately it is not uncommon for the marketing materials to have lower expenses, no capex or even no management expenses (if the owner is self managing).  You just have to do your own analysis and offer what makes sense for you based on how it will operate under your ownership.

Regarding your projections from the first post, I would network with property management companies in the area to get a feel for what the per unit expenses will be for R&M, Contract services, etc.  You can also verify your management fee projections as it is likely around 8% for the size properties you are looking at.  Finally, it may be more useful to factor in a $/per unit/per year capex projection.  For an older property most will be projecting $300/per unit/per year.  For example a 10 unit would have you set aside $3,000/year for future capex.