New York, NY · Member since 2019 · 15 posts · 2 votes
Hello BiggerPockets Community!
I'm an aspiring real estate investor, and I'm looking for some insight into how I can properly estimate expenses when analyzing a potential rental property. I understand that certain properties will allow for the tenants to be responsible for their own utilities, but let's assume that that's not the case. I've been using the following figures, which I've sourced from my family's single-family home (as most of the properties I've been looking at are similar in size):
- Property Insurance = $175/month
- Maintenance & Repairs = $200/month
- Electric = $400/month
- Water = $200/month
- Misc. = $85/month
I've also been calculating Mortgage Payments, Property Taxes, and a 5% Vacancy Reserve separately. Do these figures sound about right? Am I missing anything worth noting?
Rental Property Investor · New York City · Member since 2019 · 703 posts · 538 votes
6y
How far upstate NY? Anything with 60-70 miles of NYC has high taxes unless its a distressed area. The further away from the city the less you pay in price and tax but tax is still high and can easily eat your profits. What is your estimate for heat if its not electric?
Your electric and water estimates are about right. Natural gas to heat up a 2000SF home at 69F is about $650/month, easy. Gas delivery fees alone are about $200/month.
Investor · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
6y
I would plan on the tenant paying for utilities in a SFH. But regardless, your utility costs seem really high. Electric is $40-80 here, water about $60. Winter heating brings electric up to $150/mo.
I guess I should've included a bit more information about my situation:
- I've got my sights set on Upstate New York for my first investment.
- The properties I've been looking at are mainly multi-family homes ranging in size from around 2,000 sqft up to around 4,500 sqft.
- My family's home that I've been using to estimate my expenses is a 2,500 sqft single-family house located on Long Island right outside of New York City (Southeast New York).
Property Manager · Cleveland, OH · Member since 2019 · 446 posts · 566 votes
6y
With multifamily units you can still have separate meters for each unit, usually this is the case for electric utilities, but in some municipalities also for gas, water, sewer. Since utilities are your highest monthly expense per this sample pro forma, you want to figure out whether they are separately metered or not, and if so plan on tenants paying them.
The rule of thumb is 45-50% of gross rents can be attributed toward Operating Expenses. This is the quickest and easiest way to get a feel for what expenses should be when analyzing a property. It's also a way to verify the expenses provided in the listing or from the seller to what you think that they "should be". For example, if monthly gross rents are $2,000 the expenses would be around $900 per month ($2000 x 45% = $950). This includes everything except debt service, so principle and interest on your mortgage. Common OpEx are as follows:
Repairs and Maintenance, Utilities, Marketing, Insurance, Property Taxes, Management, CapEx, and Other Expenses.
Be leary of buildings that show OpEx below 45%. Verify all expenses during your due diligence period.
Rental Property Investor · New York City · Member since 2019 · 703 posts · 538 votes
6y
How far upstate NY? Anything with 60-70 miles of NYC has high taxes unless its a distressed area. The further away from the city the less you pay in price and tax but tax is still high and can easily eat your profits. What is your estimate for heat if its not electric?
Your electric and water estimates are about right. Natural gas to heat up a 2000SF home at 69F is about $650/month, easy. Gas delivery fees alone are about $200/month.
@Anthony Rosa I'm looking at the Southern Tier of New York. Just under 200 miles northeast of New York City. $650/month for natural gas seems absurdly high, no?
Real Estate Agent · Ithaca, NY · Member since 2016 · 427 posts · 323 votes
6y
Where in the Southern Tier are you looking? Binghamton is known for having high water bills, Tompkins has high taxes... expenses are going to vary a lot depending on the exact building. I always tell my buyers the best way to get utility expenses is to identify the building you want, then call NYSEG and ask for the average over the past year. They usually will tell you right on the phone. The only way that isn’t reliable is if there’s been vacancy, and that’s another part you’ll want to verify during the due diligence period.
Please let me know if there’s any way I can help with your search!
@Anthony Rosa I'm looking at the Southern Tier of New York. Just under 200 miles northeast of New York City. $650/month for natural gas seems absurdly high, no?
60-70 miles north of NYC in Westchester, Rockland and Orange counties Yes it's absurdly high but that's what it costs. Now, 200 miles northeast of NYC I have no clue what it costs and they probably don't have natural gas unless its within or near a city. They use propane or oil.
Attorney · Miami, FL · Member since 2017 · 108 posts · 113 votes
6y
@Omer Sultan
Use 50% of gross rents before debt service. As simple as it sounds, it's the safest and easiest way to estimate. If somehow in two years, you're able to get it lower, then it's gravy.
I'd say 99% of new investors underestimate (including me when I started).
Property Manager · Syracuse, NY · Member since 2016 · 601 posts · 384 votes
6y
If you're investing in multi-family a common tactic is to use a RUBs system. Even if your tenants are section 8 or public assistance. We invest around the Syracuse are and like to use this system. We don't throw 100% of the utility bills back on the tenants but we do throw 70% or so back their way. It's very useful when you don't have separate water meters, gas meters, electric meters, etc. Play on the safe side and don't charge what you're being billed 100% and make sure your lease is very clear on what your tenants will pay. You can simply charge them a flat price per month. On a SFH your tenants should certainly be paying for their own everything; including lawn & snow. Unless you've specifically arranged otherwise.
New York, NY · Member since 2019 · 15 posts · 2 votes
6y
@Peter S. Yeah, it seems like the conservative thing to do is to assume that 50% of your gross rental income will be spent on expenses. Thanks for your help!