Multifamily Operating Costs

[John Johnson]

I am starting to budget out and model some potential projects for MF developments. Is there a rule of thumb for operating expenses for MF in the los angeles area? My old AM firm always looked at 30% of EGI - after vacancy of 5-10% (Stabilized). I am curious if there are other developers that have other methods or historical price points for % of gross sales new construction MF units will run.

Also we are building tiny units so this would account for more units vs traditional building size and square footage. I was looking at 20 units MF building collecting about 1000 a month per unit. Ultimately white paper wise:

$1,000 x 20 Units x 12 Mo's = $240,000 per annum

5% vacancy = ($12,000)

EGI = $228,000

OPEX @ 25% = ($57,000)

Operating Income = $171,000

Reserves @ 5% of OI = ($8,550)

NOI = $162,450

Would this be feasible or am I dreaming? I like to believe 50% Opex would be the most conservative way but then most projects wont pencil ...

Any input is appreciated, thanks.

[Greg Dickerson]

Originally posted by @John Johnson:

I am starting to budget out and model some potential projects for MF developments. Is there a rule of thumb for operating expenses for MF in the los angeles area? My old AM firm always looked at 30% of EGI - after vacancy of 5-10% (Stabilized). I am curious if there are other developers that have other methods or historical price points for % of gross sales new construction MF units will run.

Also we are building tiny units so this would account for more units vs traditional building size and square footage. I was looking at 20 units MF building collecting about 1000 a month per unit. Ultimately white paper wise:

$1,000 x 20 Units x 12 Mo's = $240,000 per annum

5% vacancy = ($12,000)

EGI = $228,000

OPEX @ 25% = ($57,000)

Operating Income = $171,000

Reserves @ 5% of OI = ($8,550)

NOI = $162,450

Would this be feasible or am I dreaming? I like to believe 50% Opex would be the most conservative way but then most projects wont pencil ...

Any input is appreciated, thanks.

A lot depends on the location, size, style and amenities of the property. Some areas of the country are more expensive to operate than others. Some types of construction require more regular maintenance than others etc. The best thing to do is verify costs expectations and projections with a management company that operates similar product in the area. I would hedge on the conservative side which would be 50% just for feasibility purposes. Also I would count on 10% vacancy as well right now.