Multi-Family Operating Margins

It is my understanding , that operating margins for multifamily range from 50% to 70% given variables such as number of units, payroll, tax rate, etc.

I'm looking at a deal where the GPs operating margin is slightly north of the high end of the range listed above. This GP has a fantastic track record so I want to take what they're giving at face value, but this operating margin seems far too aggressive.

Has anyone, either personally or anecdotally achieved margins north of 70%...? Would love to hear people's thoughts on this.

Comments (6)

 
6/19/17

i've seen closer to 60% , 70 sounds aggressive

Learn More

Side-by-side comparison of top modeling training courses + exclusive discount through WSO here.

 
6/19/17
JimboUSC:

i've seen closer to 60% , 70 sounds aggressive

This is the best I've seen. I'm skeptical when I get margins this high. The only time I'm seeing assets achieve ~60% margins is when the utilities are all paid by the tenants. If you have an asset with >40 Units and you're below $1,600/door across payroll, R&M (including TO and all service contracts), and SG&A I'm usually calling bs.

 
6/19/17

North of 70% seems aggressive. Typically I see that type of operating margin with an operator that has a large portfolio of assets in a location where they can split up payroll costs and save on maintenance as well (buy repair items or maintenance contracts in bulk).

 
6/19/17

That's the case in this instance. They have several properties in a major city so that is how a lot of their cost savings are justified.

 
6/19/17

I've seen it with value add once stabilized, usually involving some sort of combination of operating efficiency as mentioned above (green building/solar panels, tenant direct bill, low management/payroll costs, portfolio level admin/sg&a). Not out of the question but tough. I think 70%-75% is OK as long as they can provide some backup/detail, anything above that would be ludicrous.

"Who am I? I'm the guy that does his job. You must be the other guy."

 
6/19/17

1-Click to Unlock All Comments - 100% FREE

Why do I need to be signed in?
WSO is a knowledge-sharing community that depends on everyone being able to pitch in when they know something.
+ Bonus: 6 Free Financial Modeling Lessons with 1-Click Signup ($199 value)