Performing Due Diligence on Commercial Properties by Using Average Per Unit Expenses Numbers

How would you like to make your due diligence efforts substantially easier while also reducing risk? I am about to give you a tip that will save you from a massive amount of frustration and stop you from making rookie mistakes. Here’s the key: Always use average per unit expense numbers from third party property management companies. Sellers and brokers love to try to convince you that by “cutting this corner here”, or “using this trick over there”, and by following their advice you can make way more money than even they made off of the property.

Don’t buy into this logic for a second! The truth is that when you bring in a management company to run your property, they are going to call on the exact same tradespeople and vendors that they use to maintain their other tens of thousands of units under management. They know what it costs to replace carpet. They know what it costs to keep a place maintained and painted. They know what evictions costs. They know what fixing sidewalks costs. They know all of this because across all the units they manage they have an average expense per unit number that they can quote you. Also, just to be on the safe side, call a few different management companies and you will quickly get an idea of where the expenses should be. Anything else you hear is impractical nonsense.

Armed with a good idea of where the expense numbers should be, you can now proceed intelligently while looking at several properties in your target area. If you know what the real income numbers are and subtract your audited expense numbers, you can quickly determine the real value of any property and make intelligent offers.

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