Monthly expenses relative to number of units

[Daniel O.]

Hey folks,

So I'm sitting here scanning through real estate listings in Pittsburgh and running quick-and-dirty analysis with the ol' 50% rule as a gauge for expenses. I look at $95,000 duplexes all the way to $1,000,000 6-plexes, and I start to notice that the money just doesn't seem to work out on the more expensive, larger properties, and that surprises me.

Then I realize: "oh right, the 50% rule is meant for single-family homes."

That brings me to my question: how do typical monthly expenses (not including loan payments) scale with number of units?

I would imagine that, as the number of units goes up, the overall percentage of gross income that goes to expenses would in turn go down, if only slightly.

What's your experience? Is there any decent guideline to for rough calculation of expenses with a larger multi-family? What are some conservative average expense percentages that you've observed with your own properties?

Thanks!

[Alex Deacon]

@Daniel O. if you are trying to make a real estate decision based solely off a rule of thumb or a spreadsheet you need to stop yourself right there. There is so much more to analyzing a property and most of the time you need to read between the lines. Look for properties that need work, are under rented, poorly managed etc... etc.... 

You can pencil whip any property and make it work but you need to know the market, the supply and demand, the upside potential and downside potential and many other variables that cant be written on a forum or read in a book. It will come with vast experience and or building a team or having good partners that know that sector of the market better than you do. 

For example I own a 9 unit here in Pittsburgh thats near 10% vacancy all the time for the past 10 years. I also have a duplex thats been near 0% vacancy for the past 23 years. The repairs on the duplex have been nominal and the repairs on the 9 unit have been extensive. Your numbers will depend on the demand, your management efficiency, the age of the mechanicals, turnover rates etc.. etc...