the-abcs-of-real-estate-investing-ken LifeFeeling

Repairs and Maintenance
Utilities
Real Estate Taxes
Insurance
Replacement Reserve
Total Expenses
Expenses
Per Unit
Seller
Pro Forma
Prior' Year
Actuals
$838 $6,700 $8,010
$409 $3,273
$425 $3,400
$125
$150
$1,000
$1,200
$1.947/unit $15,573
$2.88/sq. ft.
$3,273
$3,400
$1,000
$15,683
Let’s analyze these figures in much more detail and add our projected expenses. First
we’ll look at “Repairs and Maintenance.”
Per Unit
SellerPro Prior Year Our
Forma Actuals Projected.
Repairs and Maintenance $838 $6,700 $8,010 $8,010
The first thing that caught my eye on this table was a seller pro forma value lower than
the prior year actuals number. For some reason this seller or broker wants buyers to believe
that the repairs and maintenance will actually go down! In fact, this seller predicts repair
and maintenance to go down by over $1,300 from the actual prior year costs. Here’s a rule
of thumb: As properties age, repair and maintenance costs go up. Common sense says
expenses in the coming year will be the same or more. We’ll keep it simple here. For
purposes of my projections I will use the prior year actuals number of $8,010 knowing that
even this number could be low. Time will tell.
Next we’ll look at the utilities:
Per Unit
Seller Pro Prior Year Our'
Forma Actuals Projected
Utilities $409 $3,273 $3,273 $3,273
The seller’s pro forma utilities figure appears to be in line with the actual expenses from
the prior year, but let me caution you that utilities normally have standard rate increases
from year to year. In this pro forma the seller projects no increases. For now, we’ll use the
seller pro forma number, but you can get a very realistic projection simply by contacting the
utility companies.
How about the next line in our expense table: