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Important Rental Property Expenses to Know
Have you ever wondered what the typical rental property expenses are for a multi-family property? When performing due diligence it’s very important to analyze both the income and expenses of any property. A building’s value is dependent upon its ability to produce income and keep expenses manageable. It’s important to accurately estimate both before purchasing.
It’s essential to analyze all categories of rental property expenses as they depict the financial condition of the property. In this article we will focus on the operating expenditures. Your expenses must be lower than your income to make any profit so they should not be reviewed lightly.
Every multi-family property is different. Most do share common expenditures with respect to running the property. Below are 10 of the more common operational rental property expenses for apartment buildings.
- Property Taxes
- Property Management costs
- Maintenance/Repairs costs
- Payroll (part time /full time admin & maintenance staff)
- General Admin expenses (includes accountants & attorney fees)
- Contract Services (such as lawn care & waste management)
- Contingency/Reserve (unforeseen expenses)
Every every property is different. Each has its own level of expenses based on the age, class, and condition of the building. Investing in larger multi-family properties have a slight edge. They have built-in economies of scale when it comes to renovations, advertising, marketing and property management. The operating expenses can be optimized since the costs are spread over a large number of units.
The key point here is to not under-estimate the rental property expenses. If with contingencies the numbers still look good enough to make the acquisition, you are in a good position to generate positive cash flow!
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