Calculating Expenses for Small Multifamily (Repairs/CapEx)

[Ian Livaich]

Hey everyone,

I am searching for a small multifamily property (most likely a duplex) in South Jersey.  I am going to look at three properties tomorrow with my agent.  I am crunching the numbers and determining at what price these deals make sense.  While these particular deals do not make sense unless there is a 20-30% discount, I am wondering if you all estimate different expenses for small multifamily properties any different than SFRs.  I understand that this depends on the location and condition of the properties, but I am looking for general advice and insight as to the numbers you all use.

I have seen BP users use anywhere from 5-10% for vacancy, repairs, and capex.  I am using 8% for each to be conservative. What do you all use for small multis?  Because gross income is higher for small multis, that 24% really adds up.  I was thinking that for small multis, some of the major expenses are under one roof and spread out across units (roof, HVAC, water heaters, etc.) compared to SFRs.  So, is it necessary to budget as high as 24% for vacancy, repairs, and capex when each unit does not have its own roof, HVAC, etc.?

Thanks for your input.

[Anthony Dooley]

@Ian Livaich You  are over complicating and over calculating. If it is a good deal, buy it. If it is not a good deal, make it a good deal by putting terms into your offer. In this market, you are not likely to get the best price.

CAP-Ex is not an expense. It is a savings plan to cover repairs. If you plan for 5% for cap ex, the money is in your account, so it still counts as income. I suggest that people put all of the rental income into a separate account and only spend money from that account on their property expenses. If you have no roof to fix, the money just piles up in the account. It's called savings. Just a suggestion.