What are your rules of thumb for expenses?

[Matthew Shay]

Interested to hear what rules of thumb do you use for multifamily. Right now trying to figure out payroll for a 47 unit. Also, do your rules of thumb change when you scale from 50-10-150-200 units?

[Ben Leybovich]

The only rule of thumb I use is - Don't Use Rules of Thumb, EVER!

In Phoenix, I can run a 100-unit for about $4300 per door. Move that to Indianapolis and it'll be closer to $6000 per door. The difference is taxes and insurance.

In Phoenix, I can run 120-unit for closer to $4100 - $4200. More units to spread basically the same payroll means I can run just a bit more efficiently. 

However, stepping up to 150 units I am back up to $4400 per door. However, 165 units will be back down to $4300 per door because I can run it with the same payroll as a 150-units.

In TX, the numbers are going to be similar to Ohio, Indiana, and Michigan, though for different reasons. In the midwest, the insurance is high because pipes freeze. In TX because of hurricanes. Taxes are high in both, but TX chases purchase price aggressively...

There are no rules of thumb. I have to underwrite each property fully.

And anything much under 100 units is not manageable, at least not institutionally. The GOI is never enough to absorb management and payroll.