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There are a lot of "rules of thumb" that have been put forth regarding expenses. The 50% rule declares that the expenses will be around 50% of the income. This is used to help overcome bogus information.I should have known it would be something straightforward like: "They don't matter cause they're made up"
And this, I'm guessing is why I've seen you mention in multiple threads that the most important thing is knowing the market.
All things said, I suppose this can be viewed as a good thing. If it were as simple as copy pasting a cap rate into a spreadsheet, going to a bank, then cashing the checks, everyone would be doing it, and there'd be no money to be made.
Thanks @SteveO reps++
It does not work though. How could it? Property taxes and insurance are about 2.5 times as much in Houston as they are in Phoenix. Turnover in California is less than half of what it is in Az. Rents are more than twice as much in CA as they are in AZ. Where is this correlation? This constant argument drove me away from Bigger Pockets. Some of the key contributors stuck by this rule and put it forth regularly.
If I have a stabilized property in a high rent area with low turnover, my expenses should be less than a low rent property with constant turnover. The ratio would be dramatic. I could have 30% on one and 70% on another.
Knowing your market allows you to come up with your own numbers. My data said that on a stabilized property in Phoenix, I would spend about $3200 per unit per year on expenses. This would NOT include capital expenditures which would need to be calculated separately based on the needs.
Because of market knowledge, I could drive by a building and with the seller setup sheet the rents could be determined. You could/should do rent comps by visiting other apartments in the immediate area. The sales agent will probably provide them but theirs are never accurate.
By making your own pro forma, you can make your own cap rate. This will be much more accurate if done right. It is at this point that you will find the golden 8 cap will not be achieved in most of the country. If it is, you may want to look closer at your data or look to another location.
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