Detailed Operating Statement & Underwriting Analysis for the FHA 221(d)(4) Loan
When it comes to understanding the financial ins and outs of a potential multifamily construction or rehabilitation project, it's essential to track all the sources of income and expenses that the project may face throughout its life. That way, a borrower and lender can determine whether the project is financially viable. And, if it isn't, they can see anything can be changed to reduce expenses or increase overall income to help the property turn a profit.
Sources of Income for Multifamily Properties
As one might expect, the main source of income from a multifamily property is monthly rent from residential tenants. However, to determine the project's net rental income (i.e. residential rental profits), expenses like vacancy, concessions, and bad debt must be subtracted from the gross residential rental income of the property.
While monthly rents may be the primary source of income for a multifamily project, they aren't the only one. Other streams of income for these kinds of properties include:
Commercial rents from tenants (if the building has any)
Laundry and vending
Late/NSF (non-sufficient funds) fees
Utility reimbursement (net)
Fixed Expenses for Multifamily Properties
When looking at a multifamily project, it's important to examine both the fixed and operating expenses. The fixed expenses for a property, which typically do not change (or do not change much), include real estate taxes, other taxes and assessments, insurance, and ground rent.
Operating Expenses for Multifamily Properties
Many developers already understand that small expenses can add up. So, it’s essential to list all the potential operating expenses of a multifamily project in order to determine its long-term profitability. Operating expenses usually include:
Water and sewer
Manager apt. allowance
Caretaker apt. allowance