Attn. Multi-family experts!! I am looking for information related to expenses on Edmonton Multi-family...

[Nir]

[quote user=bizaro86]



You're doing the math wrong. Example:



1000 monthly rent, 40% expenses of $400.



Increase of $100 per month rent, and $20 increased expenses gives rent of $1100 and expenses of $420.



420/1100=38.1%








Actually, that is the wrong explanation to the right answer.



The lower expense ratio is also related to the fact the unit has been renovated not just the rent increase.

The entire unit has been renovated not just a portion of it. That is why I mentioned it's beyong the scope..



Regards,

Nir

 

[bizaro86]

[quote user=Nir]Actually, that is the wrong explanation to the right answer.



The lower expense ratio is also related to the fact the unit has been renovated not just the rent increase.

The entire unit has been renovated not just a portion of it. That is why I mentioned it's beyong the scope..



Regards,

Nir


The rent increase is caused by the renovation. The math is correct. The fixed costs don't increase with the increased rent. Ergo, the expenses associated with the unit don't increase dramatically. In fact, they probably only have normal inflationary increases, which would have happened whether or not the unit was renovated.



The expenses on the marginal rent are much less than the expense percentage on the base rent.



Regards,

Michael

 

[Thomas Beyer]

[quote user=bizaro86]

The expenses on the marginal rent are much less than the expense percentage on the base rent.


indeed !

 

[Nir]

[quote user=bizaro86]

Example:

1000 monthly rent, 40% expenses of $400.

Increase of $100 per month rent, and $20 increased expenses gives rent of $1100 and expenses of $420.



Hi Michael, that is not the case. you're assuming a rent increase achieved through renovation will result in total expenses ($420) higher than previous total expenses ($400). In most cases the opposite is true - total expenses are indeed lower so less than $400 is expected! that is the issue with your example.

However, while new expenses are indeed lower, they are still not expected to be less than 30% of rent.

and that's the part I did not think makes sense to prove here. Cheers.

 

[bizaro86]

[quote user=Nir]Hi Michael, that is just not the case. you're assuming a rent increase achieved through renovation will result in total expenses ($420) higher than previous total expenses ($400). In most cases the opposite is true - total expenses are indeed lower so less than $400 is expected! that is the issue with your example.

However, while new expenses are indeed lower, they are still not expected to be less than 30% of rent.

and that's the part I did not think makes sense to prove here. Cheers.




This post is incongruent with your previous post. Here, you're saying total expenses will decrease, so the marginal expenses percentage would be negative. Before you said this (post 16):



[quote user=Nir]My only comment is I think more accurately when rents go up $100, NOI increases by around $60.


Since a renovation was involved in both the examples, your objection doesn't make any sense. If expenses don't increase and rent does, then NOI should increase by the same amount as rent. Your initial argument seemed to be that ~40% of the marginal rent should go for expenses. I countered with less than 40% of MARGINAL rent for expenses, but still right around 40%. Obviously the total expenses would not be below 30%.



Total expenses shouldn't increase much in a renovation scenario (I used 20% as a conservative example). The marginal expenses are very small, mainly just more expensive repairs to any higher end finishes.



I don't think we actually disagree, but your problem changed in your different replies, which is confusing.



Regards,



Michael

 

[Nir]

You're correct Michael, my example was not very good but the point I'm trying to make is the same:

new expense ratio is expected to be lower but still above 30%.



Example:

Before renovation:

rent - $1000, expense - $420, monthly NOI - $580, expense ratio - 42%



After renovation:

rent - $1200, expense - $400, monthly NOI - $800, expense ratio - 33%



what I did not prove as mentioned is why expense is still expected to be above 30%

I mean I could plug in a different expense significantly lower than above. didn't prove why that'd be wrong.



Regards,

Nir

 

[Thomas Beyer]

[quote user=Nir]Example:

Before renovation:

rent - $1000, expense - $420, monthly NOI - $580, expense ratio - 42%



After renovation:

rent - $1200, expense - $400, monthly NOI - $800, expense ratio - 33%
thus: additional rent: $200 .. add'l expense: $20 .. 10% !



I rest my case !

 

[Nir]

[quote user=ThomasBeyer][quote user=Nir]Example:

Before renovation:

rent - $1000, expense - $420, monthly NOI - $580, expense ratio - 42%



After renovation:

rent - $1200, expense - $400, monthly NOI - $800, expense ratio - 33%
thus: additional rent: $200 .. add'l expense: $20 .. 10% !



If you read the example there is no additional expense of $20. new expense: $20 less.

Regards, Nir