So you are ready to start underwriting for Multifamily properties… awesome! But how do you know if you are paying too much in expenses on one of your line items? Below you will find some basic rules of thumb for underwriting Multifamily property expenses. Keep in mind that these are general and the actual numbers HIGHLY depend on where your property is located. For instance, your insurance on the coast of Florida will cost you much more than the rule of thumb. In general, it is safe to use the sellers expenses if they are reasonably higher than the ROT. If your seller is paying $500 per unit in insurance, and you are located on the coast we suggest using the sellers number rather than the Rule of Thumb. Use your best logic here guys. These numbers are a general ROT and do not always depict accuracy for your particular property or situation. Remember to have your numbers reviewed by an experienced operator to ensure accurate expectations are being projected.

Lets get started learning the Underwriting Rules of Thumb for Multifamily Properties.


Gross Potential Rent

  • Historical – The last two years Operating Statements, the last 12-month trailing trend report or 6 months or the very minimum the last 3 months.
  • How is it trending? What are the highs and lows? If trending up, you may take an average and calculate an annual figure. In some deals, you may average out the last 3 months and get an annual figure. If it is trending down – use those figures.

Economic Vacancy

  • (Gross Potential – Rental Income = Economic Vacancy)
  • People who are living there, and not paying
  • Vacancies, Loss to Lease, Employee Units, Concessions, Discounts, Write offs

Other Income

  • Club house, Late fees, Laundry, Vending, Application Fees, Bad Debt Collections, Water recapture.
  • Utility Reimbursement
  • Billed-back Water Utilities
  • Expenses
  • Taxes



  • $250 per door (this could be higher, depending on if property is closer to coast, the claim history, if in flood zone, etc)
  • A few ways to get costs down:
  • Umbrella policy – when you own a lot of property
  • Management Company – if using a management company that manages many properties, you can piggyback on their rate.

Repairs & Maintenance (R&M)

  • $300–$600 per door on average for a C+ or B property
  • If lower than this – then they are not claiming all the expenses.
  • If higher than this it is usually caused from tenant turnover
  • Contractors and material, Carpet Cleaning, Keys and Locksets, Make Ready

Look at the Assessment Value
(80% Purchase Price) x (Mill rate) = Taxes
Get Mill rate from the assessor’s office

General Administration

  • $100-250 per door
  • Misc. things that you need to keep the leasing office running, Accounting Services, Bank Fees, Permits, Office Supplies, Postal Delivery, Telephone, Answering Service, Pagers, Travel, Vehicle Mileage

 Management Fees

  • Typically 4% of Total Income for larger properties
  • If you know you are going to be using a particular property manager and you know their fees, use that figure.


  • $100 per door
  • If the property is located on a main road or in a tight market – $50 per door


Take historical from last year, annualize this year’s, compare & then take the higher of the two.

Electricity, Gas, Oil, Water, Sewage, & Utility Billing.

Contract Services

  • $200-400 per door
  • This could be Landscapers, Pest Services, Trash Services, and Security etc.


  • $700- $1000 average is usually $900 per door.
  • If it’s coming in at $1100, there are too many people onsite; $700 usually means property is understaffed.
  • It is reflective of the area. This is where your lenders become very useful.
  • Also you can purchase the book, Multi-Family Dollars & Cents
  • Manager, Leasing agent, Maintenance, Bonuses, Payroll Taxes, Workman’s Comp

Capital Expenditures

  • $250 per door
  • Money in an account so that the bank knows that you can pay for them.

Out of pocket costs

  • 20% down payment
  • 3% closing costs
  • Includes bank legal fees, third party reports and any points.
  • This will be higher when syndicating a deal because of higher attorney fees

Debt Service

  • .0075 – calculates monthly principal and interest
  • Assume 6.5% to 7.5% for interest calculation

Again, always take the higher number between the ROT and the sellers numbers. If something seems odd, start doing research. Call the local contractors, insurance, landscapers, property managers and county assessors to get an accurate assessment of cost. These are to be used to quickly analyze a property to see if it is worth continuing to research. Above all else, do not “adjust” the numbers to work for what you want. Take your emotions out of it when analyzing and try to just look at the property for what it truly is. The numbers always tell a story, what story are you being shown?

Here is to your massive success! Remember- nothing beats ACTION!