Multifamily Investing Podcast  with Multifamily Attorney Charles Dobens 

Know What The Average Expenses Are In Your Market

blog Sep 26, 2019
Expenses are usually per year, per unit number. If you can decrease your expenses you can make so much more money because of the power of the cap rate. If you can break it down on a per item basis you can see where you can save.

Mistake number three : Know what the average expenses are in your market. Now, what you'll see some brokers doing is expressing the expenses as a per unit per year number. I see that quite a bit good, alright? That's fine. Let's capture that information. So when we capture that information from them and we also capture on our own, we then have perfect information or more precise information as to what is going on in that market as far as the expense numbers go. 

And this gets to a value play. But what do you do on the expense side? How many times have you looked at the expense side and really broken it down to know that, if you can just adjust this one particular category of expenses, it's going to save you a lot of money. You've got to look at all categories of income and expenses, because remember, any fluctuation, one dollar in either direction, can make so much more money because of the power of the cap rate. 

Keep your expenses in line by looking at it on a per unit per year basis. You can right away know, do I have a value play in the expenses as well? And that's something you want to keep in mind, because once you break it down, not only just on a per unit basis, you’ll ask why is that per unit cost so high? 

Why is it so low? And that's why we have to go down and break it down into the other categories. 

Why is the payroll so high? Let's see who we have on this property. 

Do we need to add more? Because we're in a situation where we have to lease up or we have a lot of repairs and maintenance that need to be done. 

I mean, all the categories, every single category, once you get that per unit per year basis for the expenses then let's break it down. Take that number down even lower, more granular, so that you can figure out where can I save some money. 

Here's the thing. You might ask, "Well Charlie, don't you use your rules of thumb?" Yeah, okay. The rules of thumb is a quick thumbnail sketch of what's going on on that property or how the numbers are looking. But if you, keeping it into broad percentages, can break it down on that per unit basis and figure out what it is, category by category, and how their numbers are in line with other like properties in the same market, you'll know that the number's right or not. 

Yes, could be one of the sources. Just make sure that you're looking at the right areas, the right locations and the right types of property. Always remember that information is gold in this business and the better information you have, the better chances of finding the right property, moving fast on it, not losing your shirt, not being taken by the brokers and what the brokers are trying to do.

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