NYC operating expenses?

[Eric A.]

Question for all the seasoned NYC / Brooklyn / Queens multi-family buy and hold investors out there. When analyzing multi family properties in our high-cost area, what rule of thumb or percentages do you use for estimating operating expenses?

I know the 50% rule is a favorite of many BP members across the country, but I find it hard to believe that in high cost areas like NYC or San Francisco, where a 3-family property can easily gross 100k in rental income per year, that 50k of operating expenses per year is a normal or reasonable estimate.

Property taxes on NYC multi-families is actually pretty low (like $300 per month), and insurance is also pretty manageable (conservatively $200 per month).Additionally, vacancy is generally very low here, at roughly 3% or less.Am I to believe that water/sewer/heat/maintenance/vacancy will account for over $3,500 per month / or $44,000 per year over the long term?I find this impossible to believe.

I’d like to hear a discussion from NYC or SF multi-family operators and what your experience has been and what a realistic expense estimate is.I’ve been using 35% in my own back-of-the-envelope projects, and to be honest, even with this lower expense estimate, I have yet to see a listing that cash flows positively with 80% financing. Thoughts?

[Yin Choi]

Depends on the neighborhood. The reason why you cannot cash flow positively in areas in Brooklyn is because of the price of the properties which makes your mortgage payment >50% of your monthly income. Why people are paying these prices? Appreciation play and/or preservation of capital (legal/illegal) - or they can afford to look 10 years down the road and take a cash flow neutral/negative property to eventually go cash flow positive - which circled back to appreciation