Estimating expenses on apartment buildings

[Tyler Wisner]

Hey everyone, I’m getting into small apartment investing, I’m looking for a 5-8 unit property at the moment, I’ve read people use the 50% rule, as a rule of thumb when making offers, does that generally include your vacancy expenses or do you add vacancy for your area on-top of that?

Also for anyone that buys apartment buildings, do you find the 50% rule is pretty accurate? If someone uses another method to assume expenses before doing their due diligence on the property to make offers I would love to hear it.

[Rick Martin]

@Tyler Wisner if you find a decent Excel spreadsheet analyzer, it will lay it out for you.

Total market rents (Research what market rents you should be getting pre and post renovation. Get the rent roll for current rents to check against)

- vacancy, bad debt, loss to lease, concessions

+ other income (pet rent, utilities bill back, laundry, etc)

- total expenses (50% quick rule of thumb, but ask for T-12, the trailing 12)

= NOI (divide this by the prevailing market cap for value)

- debt service for cash flow.