Multifamily Operating Expenses per Unit: Price Them at Market, Not What the Seller Paid
A seller's T12, the trailing twelve months of income and expenses, records what that owner spent running the building, and very little of it carries over to you, because taxes reset, insurance gets repriced, and the owner's unpaid labor leaves with the owner. Buyers who carry the seller's expense lines forward tend to overpay, then find the gap at the first tax bill or insurance renewal, after the loan has already been sized and closed.
Yardi Matrix, which tracks about 22,000 properties, put average multifamily operating expenses at $8,950 per unit per year as of January 2024, up 7.1 percent in twelve months. Insurance rose fastest, at 27.7 percent, with marketing up 12.3 percent, administrative costs up 9.6 percent and repairs and maintenance up 8.8 percent. Average insurance cost reached $636 per unit, 129 percent higher than in 2018.
Your property will not match the national figure, because age, size, unit mix and whether the owner pays heat all move expenses up or down. But a 1970s building showing $4,500 per unit on the seller's T12 is missing something, and you need to know what before you write an offer.
Property tax is usually the largest correction, since the seller pays on an assessment that may not have been updated in years, while you will be taxed on your purchase price, often starting the year after closing. Check how your state treats reassessment after a sale, calculate the bill at your price and the current millage rate, and expect that one adjustment to move NOI more than every other change combined in many deals.
Get your own insurance quote before you finalize the model, written with the coverage and deductibles your lender will require, because the seller's number is history. It reflects an old policy, an old claims record and sometimes a renewal increase that has not hit the books yet. In Florida, insurance drove much of the expense growth Yardi Matrix recorded, and buyers who carried the seller's premium forward learned the real number at renewal.
Self-managing owners show no management fee, and owners who fix things themselves show thin payroll and repair lines. Your lender will underwrite a market management fee whether you plan to self-manage or not, so add it to your model. Then replace every hour the owner worked, from leasing and bookkeeping to the 2 a.m. call about a burst pipe, with what it costs to hire someone.
Utilities and repairs both look cheapest in exactly the year you are shown, and a master-metered building that came through a mild winter can report heating costs thousands of dollars below normal, so ask for at least two years of bills and average them. Repairs often fall in the year before a sale because the owner stopped spending, so compare the trailing twelve months to the two years before it. A sharp drop usually means deferred work, and that work becomes yours at closing, along with the replacement reserve your lender will add on top of operating expenses.
Bank and agency underwriters run this same exercise against their own comparable properties and use whichever expense figure is higher. If yours is lower, the loan shrinks after you have already agreed on price. Yardi Matrix's data also showed income per unit rising $1,056 while expenses rose $593, so NOI still grew, but that cushion lasts only as long as rents keep climbing.
Rebuild the expense side before you make an offer: taxes at your price, a real insurance quote, a market management fee, paid labor in place of the owner's, two years of utilities, and repairs tested against prior years. Total it per unit and compare it to the market, then price the deal on the numbers you rebuilt.
Pricing a deal on your own expenses instead of the seller's is the surest way to avoid a loan that shrinks after you have already agreed on a price. I help apartment buyers review operating statements and build CRE models that rebuild expenses at the purchase price and test them against the market. If you are about to make an offer, send the seller's operating statements and rent roll to amer@awadcapitaladvisors.com, and I can help you see where the numbers are likely to move.