Expenses Ratio? (Multi-Family Analysis)
I need help and feedback regarding the total expenses ratios that I should use for analysis on apartment buildings 25 units and above.
I have received previous advice that has been all over the map - from a low of 35% to a high of 60%. My target market is Chattanooga, TN where the cost of living (and rents) are quite reasonable and about 10% below national averages.
For clarity, the total expenses ratio would be expressed either as a % of gross scheduled rents or a % of actual collected rents.
Any feedback is greatly appreciated - the more detailed the better!!
Brian.
you need to contact some in the local market for relevant data.
Associations of land lords
commercial brokers
etc.
Use 50% of gross scheduled rents. It is the national average and will approximate your market over time. If it turns out to be a little high right now, then you have erred on the high side and your cash flow will be a little higher than you projected.
Spend a couple hundred bucks and buy the annual IREM Guide to Income and Expenses. It will break down expenses by category and give you both income ratios and costs per square foot. It will even break this information down by type of building (garden, high rise, etc) and by location/city.
Back when I did apartment buildings it was my bible. I used it so much the pages for Chicago came loose and fell out of the book. I photocopied them and used the photocopies until they wore out.