I'm working on a small acquisition for my portfolio and looking for guidance on opex. The deal is a 42 unit apartment deal - 1960s vintage but all units have remodeled in the last 5-7 years. Newer windows. The property has steam heating paid for by landlord. Electricity and gas is sub metered. Asphalt parking in rear for about 20 cars and almost no green area. Curious what peeps are seeing for R&M, Insurance and Payroll on assets like this. I imagine you need one dedicated body - likely full-time but tough to get a handle on running small properties like these efficiently.
I'm underwriting to the following per unit per year assumptions:
$1,300 Utilities
$1,000 R&M & Contracted Services
$1,000 Insurance
$1,000 Payroll
$200 G&A
$500 Reserves
Am I in the ballpark on this?
Based on the most helpful WSO content and insights from experienced real estate professionals, your underwriting assumptions for a 42-unit, 1960s vintage apartment deal seem to be in a reasonable range, but there are a few considerations to keep in mind:
Utilities ($1,300 per unit per year): Given that you mentioned the property has steam heating paid for by the landlord and electricity and gas are submetered, your utilities estimate seems reasonable. However, the actual costs could vary based on the efficiency of the steam heating system and the insulation quality of the building post-remodel.
R&M & Contracted Services ($1,000 per unit per year): For a property with recent unit remodels and newer windows, this estimate might be on target. However, the age of the building could mean underlying systems (plumbing, electrical) might require more maintenance. It's wise to review past maintenance records if available.
Insurance ($1,000 per unit per year): Insurance costs can vary widely based on location, coverage levels, and the insurer's assessment of risk. Given the building's age and recent updates, this estimate could be accurate, but it's advisable to get quotes from multiple insurance providers to ensure competitiveness.
Payroll ($1,000 per unit per year): For a 42-unit building, considering one dedicated full-time staff member seems appropriate. However, the actual cost will depend on local wage rates and the specific duties required. If the staff member is handling leasing, maintenance coordination, and property oversight, this estimate might be on the lower end, especially in markets with higher labor costs.
G&A ($200 per unit per year): This estimate for general and administrative expenses seems low, especially for a property of this size. Consider factors like accounting, legal fees, office supplies, and technology costs when refining this number.
Reserves ($500 per unit per year): Setting aside reserves for capital expenditures is crucial, especially for an older property. This amount might be sufficient for minor updates and emergency repairs, but larger capital projects could require additional savings.
In summary, while your assumptions seem to be in the ballpark, it's important to conduct thorough due diligence, including reviewing historical operating data, getting current quotes for insurance, and adjusting for local market conditions. Engaging with a local property management company for insights on operating expenses in the area could also provide valuable context to refine your underwriting assumptions.
Sources: Can I get some feedback on underwriting a 60 unit apartment deal, https://www.wallstreetoasis.com/forum/real-estate/looking-at-my-first-investment-property-in-nyc-any-advice?customgpt=1, Industrial Properties - What are the key things to know?, Multi Family Investing - New York City, First Solo Property Tour (Multifamily)
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Idk what market you’re in but 1k seems light. Def doable though so I guess depends on your market and how optimistic you want to be
What market? Elevator served? Do you have another asset to manage this one jointly?
In general, you’re light. Gone are the days of $1,000/u payroll. $1,600-$1,800/u if you have a sister property to round it to an even 100 units or get lucky with another property owner ok with sharing staff. If not, expect $2,500/u. Contract services/R&M/Turnover should be higher but how much higher depends on the specifics of your property. Marketing $200 to $300 per unit.
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