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What Are Typical

Apartment Building
Operating Expenses?
by Theresa Bradley-Banta

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by Theresa Bradley-Banta
BUY ON
AMAZON
It’s the most often asked question I receive: How do I
know if a deal is a good one or not?

This question is almost impossible to accurately

answer without:
:
 Detailed property operating income and
expenses.
Comprehensive capital expenditure
projections.

Today we’re going to talk about expenses.

Expenses as listed in an
apartment building
o!ering memorandum
(brochure)
BUY ON
AMAZON

Apartment building o"ering memorandums (sales

listing brochures) typically list property operating
expenses in general, broad categories almost always
like this:

Insurance.
Property Management.
Property Taxes.
Utilities.
Repair and Maintenance.
Administrative.

As I said, fairly broad categories. Until you get your

hands on the seller’s historical property operating
numbers it’s almost impossible to get an exact
understanding of the property.

And it’s your job to get this information.

Your bank or lender will want to see historical cash

:
 flow figures for the property going back at least one
year, preferably two. So should you.

How do you get them? Simple. Ask for them. Don’t

take “no” for an answer. When I analyze deals I ask to
see these numbers up front. Before I agree to a
showing and before I consider making an o"er on an
apartment building or any multifamily property.

Hidden expense numbers

The problem with broadly categorized property
expenses is that you cannot drill down to specific
costs. Without itemized line items you can miss red
flags. Expenses can be left out.

For example the simple category “Utilities” will

include:

Gas,
Electric,
Water,
Sewer and,
Trash (sometimes included in utilities).

Without line item expenses it’s almost impossible to

knowledgeably analyze a deal. And to accurately
assess potential problems and opportunities.
:
 Operate from a good
baseline
When I look at properties in any market I analyze at
least five similar deals to the ones I’m interested in
purchasing. This gives me a good baseline for typical
property expenses.

Such as, if I see an atypically high cost for “Water” I

know I need to investigate further. This could be a
red flag for serious plumbing issues.

But without a baseline I might completely miss the

water bill is high in comparison to similar properties.

Here’s another example. The price for pest control is

often included under the “Repair and Maintenance”
category. Pest control is a common property
operating cost but the number is typically fairly low.
An unusually high number could be a red flag for a
serious problem such as bed bugs, which can infest
an entire property. Bed bugs are becoming more and
more common. Even five-star hotels and new Class A
apartment buildings can—and do—become infested.

Again, without historical numbers and a baseline to

compare expenses to, you might miss noticing an
:
 abnormally high pest control number.

Always get a property’s

historical operating data

As I’ve already said, always, always use the historical

property operating data when analyzing properties. I
cannot emphasize this enough.

It is not enough to rely on the broadly categorized

expenses presented by a seller or by a commercial
broker.

Typical apartment building

operating expenses
The following spreadsheet will give you a good idea
of the number and variety of expenses you will incur
as an apartment building owner. This spreadsheet
includes two properties totaling 45 units.
:
 Unexpected apartment
building operating and
renovation expenses
:
 As a new apartment building owner you will incur
unexpected expenses. That’s a promise.

It’s almost impossible to foresee every eventuality.

You might simply overlook an expense. That
happens. But with some practice analyzing deals—as
many as you can—you will be become more
educated and less likely to miss something.

Until you become proficient with property analysis,

work with a multifamily mentor or apartment
building owner operator to analyze any deal you are
considering making an o"er on.

In addition to mentoring programs I o"er one-on-

one private consulting for specific deal and property
analysis. Please visit my Real Estate Mentoring and
Consultancy Services page for more information. Or,
why wait? Contact me directly with any questions you
have.

Related Articles
5 Big Multifamily Deal Analysis Mistakes to Avoid

Creating an Annual Operating Budget for Your

Multifamily Property

Multifamily Property Checklist: An Owner’s Guide for

Operating Apartment Buildings

***
:
 Bio Latest Posts

Theresa Bradley-Banta
CEO/Founder at Theresa Bradley-Banta Real
Estate Consultancy

Theresa Bradley-Banta writes about

investing in real estate while
avoiding the pitfalls that plague
many new investors. She is a 2017
PropTech Top 100 Influencer and
winner of 14 American and
International real estate awards for
her website and real estate investing
programs. As featured on: The
Equifax Finance Blog, AOL’s Daily
Finance, Scotsman Guide, The Best
Real Estate Investing Advice Ever Show,
Stevie Awards Blog, Rental Housing
Journal, and Investors Beat among
others.

23 Comments
Scott Young on October
19, 2013 at 10:33 pm
Reply

Great article – thanks for

sharing. I can see how
getting a baseline for the
market is hugely
:
 important. That probably
wouldn’t have occurred
to me without your
article.

Best,
Scott

Theresa
Bradley- Reply
Banta
on October

21, 2013 at

9:36 am

Thanks for
reading &
commentin
g Scott!
Glad you
picked up
on the
importance
of
developing
a good
market
baseline.
It’s a good
habit to get
into.
:
 Jason B. Smith on March
27, 2017 at 8:42 pm
Reply

Thank you for sharing

your insight on
Apartment expenses. I
really enjoyed the article
and forward to learning
more as I invest in multi-
Family properties for
years to come. Thank
you and keep up the
excellent work.

Theresa
Bradley- Reply
Banta
on March 28,

2017 at 9:04

am

Thanks for
stopping by
Jason. It’s
good to
connect!
Let me
know if I
can ever
help you
out!
:
 Theresa

Century 21 Everest
Property Management Reply
on March 30, 2017 at 6:38

am

Thank you for pointing

out typical apartment
building operating
expenses! This is a very
big help for people
wanting to enter the
business of renting.

Theresa
Bradley- Reply
Banta
on April 3,

2017 at 12:53

pm

It’s my
pleasure!
Thank you
for taking
the time to
visit and to
leave a
comment.
:
 Best wishes
to you!

Theresa

Alex G on April 24, 2017 at

8:00 pm
Reply

Theresa – I enjoyed
reading all this material –
Very Informative !!!
Thank you !
Alex G.

Theresa
Bradley- Reply
Banta
on April 25,

2017 at 11:21

am

Glad you
stopped by
Alex!
Thanks for
leaving a
comment, I
love
hearing
that I’ve
been
:
 helpful. All
the best to
you on
your
investment
journey.

Theresa

Ben Wildman on May 12,

2017 at 7:45 pm
Reply

I did not see mortgage

payment in the list of
operating expenses.
Is the mortgage payment
considered an ‘operating
expense’?
Is only the interest
portion of a mortgage an
operating expense?
What is the principal
portion of the mortgage
‘considered’?
Thanks for your
clarification.

Theresa
Bradley- Reply
Banta
:
 on May 17,

2017 at 1:03

pm

Ben,

Debt
service
goes
beneath
the NOI
(net
operating
income).
Take a look
at my
article How
to Value a
Multi-Unit
Property
and also
follow, and
read, the
linked
articles
there.

Thanks for
stopping
by!

Theresa
:
 Irvin
Henderson Reply
on July 2,

2019 at 9:22

pm

Great
selection of
topics.

G. Long on August 23, 2017

at 8:34 am
Reply

we manage a 20 unit
renovated building in
Vicksburg, MS and our
ongoing operating and
maintenance costs are
far more than in you
typical example. For
instance if we have to
replace a washer and
dryer in 1 unit (and they
need to match), it is as
much as your entire year
for appliances. Also, how
do management cost
only come to about
$6000 for a year. A
manager cannot live on
that amount unless they
:
 are managing many
properties for a salary
from a large
management company.

Theresa
Bradley- Reply
Banta
on August 23,

2017 at 10:33

am

Thanks for
taking the
time to
leave a
comment.

Actual
property
expenses
will vary by:
age; class;
style;
renter
demograph
ics; number
of units;
manageme
nt
preference;
:
 submarket;
market
cycle;
supply and
demand;
operation
policies;
etc. All
things I’m
sure you’ve
experience
d as an
owner-
operator of
a
multifamily
property!

No two
properties
or markets
are alike.
Your
example is
appropriat
e for your
property
but a new-
build Class
A
apartment
:
 building
will
experience
entirely
di"erent
expenses.

When
underwritin
ga
property,
it’s
imperative
to get the
actual T12
financials
(trailing 12-
month
property
operating
data) from
the
seller/owne
r. You
should
never rely
on pro
forma
numbers,
never
accept
:
 broadly
categorized
expenses
or assume
anything.

You might
enjoy
taking a
look at the
2016 NAA
Survey of
Operating
Income &
Expenses
in Rental
Apartment
Communiti
es. You can
also pre-
order the
NAA 2017
survey at
this link.

Thanks
again for
your
comment.
Best wishes
with your
investment
:
 .

Theresa

MUKOSE BRIAN on
September 5, 2017 at 1:30
Reply
am

Thanks Theresa for the

article ,am practicing
auditing in Uganda ,
Africa but it has given
me deep insight of how
to categorize operating
expenses especially
when dealing with
apartments,thank you

Theresa
Bradley- Reply
Banta
on

September 5,

2017 at 10:20

am

Thank you.
I’m glad to
know the
article
helped!
:
 Thank you
for your
feedback.
Best wishes
to you.

Theresa

Kevin McLiney on August

7, 2018 at 3:47 pm
Reply

Do you have any idea

what amount of time or
money a landlord
spends, on average,
resolving resident
conflicts?

Theresa
Bradley- Reply
Banta
on August 13,

2018 at 12:56

pm

Good
question,
Kevin.
Depends
on the
location,
:
 property
size,
number of
tenants
and
seriousnes
s of the
conflict(s).
Best way to
avoid
issues is to
have solid
operation
policies/pr
ocedures
and
training of
sta". You
should also
have an
attorney
who is
experience
d in tenant-
landlord
disputes.

Thanks for
taking the
time to visit
and
:
 comment.
Best
wishes!

Theresa

Joseph on January 7, 2020

at 11:41 pm
Reply

HI Theresa,

we are in the process of

creating our p&l for an
11 unit apartment we
own. should the
renovation cost be listed
in the p&l or should it
not? we capitalized on
those costs and placed
them on the balance
sheet to depreciate it.

Theresa
Bradley- Reply
Banta
on February

4, 2020 at

9:26 am

Hi Joseph –
Capital
:
 improveme
nts will
appear
below NOI.
Be sure
also to
speak with
your tax
profession
al to take
advantage
of the new
tax laws.
Best
wishes!

Theresa

Susan
o
Reply
n

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Reply
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Raphiya on April 15, 2023

:
 at 1:36 pm Reply
Hello Theresa,
Do the repair and
maintenance costs occur
monthly (as in hiring a
handyman with a
monthly salary) or is it
per contract (only hire
the handyman when
there is something to
fix).

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