You're using the wrong expense assumptions...

[Max James]

Not sure if you guys listened in on Ben Leybovich's webinar last night, but I have to say I agree with him.

He showed how you can drastically come up with a different valuation of a property ALL based on your assumptions.  The expense assumptions are more than just simple percentage, it begins with the story of the property, as Ben put it. 

What do you typically use for your expense assumptions and why do you use them?  

[Gino Barbaro]

@Max James

Hi max

I think it depends on the market as well as the asset type.  I own C properties in Knoxville, TN.  When I refinanced the property, the bank assumed a 3,600 per unit expense figure for 136 units.  They were pretty close.  We try to run between 3200-3800 per unit.  We just purchased a B in the same market and the expenses may run a bit higher because of the amenities, higher taxes.

I use a 50% rule of thumb for expenses as a percentage of total income. If you see a property running above 60%, then you may have an expense play.  Anything below 40%, then you are looking at self storage or a dishonest or disillusioned seller.

Gino