Operating Expenses Question

[Peyton LaBarbera]

I was wondering how you would go about finding out how much (in percentage terms) the operating expenses are on a property without owning it aka when looking for properties to purchase

Because of course if I already owned the property then I would know because I have to pay them all but when trying to figure out if a property's purchase price is justified how can I determine how much the operating expenses will be?

[Devin De Lange]

Hi Peyton, 

Great question. This was one of the biggest questions I had going into investing. There are a lot of great articles out there, but sometimes it can lead you down a rabbit hole and it can get overwhelming. 

I would start with identifying what operating expenses are. Here's a good site that lists out operating costs (Link). You can create an excel doc (or something like it) to list the operating expenses out in Column A. Then, you need to deep dive into your market and cost bracket to find the costs, especially if you are going to self-manage. This can take time, but it is really helpful to better understand the long term costs of your investment. For example, for property taxes, you can search Google for what the state taxes are on a primary/secondary property. You can use that percentage to determine your yearly taxes and then divide by 12 to understand how that will impact your monthly bottom line. In some states, the property tax rate is different depending on if it is a primary or secondary property, so this is something to keep in mind. Then you make your way down that list of operating expenses and put in the estimated costs. You may have $0 for marketing because you will use a free service. Your insurance premium (which you can get a quote for free in a few minutes or search the avg. insurance rates in an area), may be higher or lower depending on your location. You can call your the local utility company to get an idea on utility costs. Etc.

Another route to take, is to interview a local property manager. They typically work their local market and have more detailed estimates. 

Hope this helps!