Operating expenses are expense line items/ liabilities that are paid to keep a business running smoothly.
For apartment syndications, these expenses are the costs of running and maintaining the property. These typically include payroll, utilities- electricity, gas, water/sewer, trash removal, maintenance, repairs, contract services, advertising/marketing, administrative, management fees, taxes, insurance, and reserves.
When underwriting a property, the expenses are outlined in what is known as a T-12 or trailing 12, which is a report expressing each expense as a separate line item for the last 12 months.
This separation can help us identify weak and/or areas of improvement for a complex and how best to handle these line items.
In order to seek the best returns for our investors, it is imperative to have a good, firm grasp on the operating expenses to ensure we are not taking a deal down that really isn't a "good deal."
As always, any and all questions are welcome!