We have two 4-units in South City, both around the 100 y/o mark. The first property we've had for 3 years and the average expenses have been:
Management: 11%
Taxes: 9%
Insurance: 4%
Fixed expenses: 12% (water, sewer, trash)
Variable expenses: 21% (repairs, maintenance, capex)
The first four categories have been very consistent as you'd expect since they're relatively "fixed" rates. The variable expenses have been as low as 16% and as high as 26% to get a 21% average so there are better years and worse. Over time you'd expect the average to come down, for instance in year 3 we replaced the sewer laterals which bumped up that year's variable costs, but over time that should be a zero maintenance feature and that cost averages out over each subsequent year.
Our 2nd property took 18 months or so to finally stabilize so the variable cost data is all over the place, as high as 60% in year one so it's hard to compare. However, the 1st property detailed above had been professionally managed for many, many years, was eat-off-the-floor level spotless clean in the basement and had clearly been well cared for and maintained when we bought. Our 2nd property was in much worse shape and had been bought as a flip by a DIY investor/manager who was in over his head rehabbing three 4-units at once and likely had decades of deferred maintenance prior to him owning it and doing bad lipstick work on it for a year so there were a lot more issues to run to ground.
So yes, costs will be high, I would definitely figure 20-25% variable cost unless it's a property that's been recently gutted and completely rehabbed. If you figure 25% variable costs that'll likely push you closer to 60% total expenses along with your fixed costs, but if you can buy it right and the gross rents will cover those costs and your mortgage and leave for $100-150/door or whatever your cash flow goal is, then you'll likely do much better some years when that variable # is more like 15% and the years when you have a big ticket expense you'll still make money or at worst break even. A PM we interviewed early on told us that you should break even with 3/4 units rented and pocket 100% of the rent from the 4th unit, that's your profit. So far that's been vaguely accurate and a helpful way to think about it.
What you don't want to do is take your 30-35% fixed costs, add just 10-15% for maintenance so you're at 45% expenses and run the numbers to get $50-60/door cash flow and say ah well rents are going up so that'll help my cash flow over time to get my $100/door goal or whatever and then when your expenses turn out to be 65% one year you're bringing money out of your pocket to pay for things because there's just not enough meat on the bone. Going into these properties we were overly conservative I felt and with 3.5 years in the bag I think we should have definitely projected worse up front just to be even safer. DO NOT fudge the numbers just to make it a "deal" on paper.
