operating expences

Rehabbing, Fix and Flip, Rental Properties
1

I am using the 50% of gross rents for operating expences to evaluate deals. Should I use a higher percentage if the heat and electric are included in the rent? Or is this already included in the 50%

Thanks for your help

2

50% does not include heat and electric for the units, just utilities for public areas (lights outside and in hallways, etc). You’ll need to add more for those expenses.

3

I am planning to manage this 4plex my slef so would my normal operating expences be 25-35% of gross rents ? Then I am figuring another 15% for utilities. Would this be a close estimnate. Also, this may sound silly but how do you figure what percent of operating expence the electric is. Example: $10,000 operating expences. electric is $ 3,000 anually. what percent would that be and how do you do the math. thanks

4

Seldom are operating expenses the nice round percentage of 50% of the gross income. It’s a good conservative number to use as a prequalifier, but I would use the actual expenses of the property along with the ones the current owners have yet to include.

Here’s a quick list of possible operating expenses you may or may not have to include:

There are 3 separate types of operating expenses; fixed, variable, and reserve.

Fixed
Property taxes
Insurance

Variable
Property management
Maintenance
Legal Fees
Accounting fees
Advertising
Administrative expenses
Extermination
Landscaping
Trash Removal
Pool/ Recreational area maintenance
Utilities

  • Sewer
  • Gas (propane, oil, natural)
  • Water
  • Phone
  • Cable
  • Electric

Reserve for Replacements
All capital expenditures from the depreciation and deterioration of all major building components such as;

  • Roof
  • Siding
  • HVAC units
  • Water heaters
  • Appliances
  • Paint
  • Windows & Doors
  • Electrical system
  • Non-carpet flooring
  • Parking lot
    Remaining economic life of each component has to be determined first. Future replacement cost of the major components will then have to be determined to set an appropriate amount fof money aside every month to pay for the replacement when the component becomes fully depreciated/ deteriorated.
5

3,000 divided by 10,000 gives you .30 or 30%