What Are the Average Operating Expenses for Apartment Properties?

Picture this. You buy an apartment building thinking it’s pretty straightforward. Collect the rent, pay the mortgage, and whatever’s left is yours. But once the bills start showing up, reality feels different. Property taxes, repairs, insurance, even small stuff like advertising an empty unit, they all eat away at what you thought would be profit.

The truth is, operating expenses take a bigger bite than most new investors expect. If you don’t plan for them, your returns can shrink fast. In some cases, cash flow even goes negative. A lot of beginners run into this because they only budget for the mortgage and skip over the everyday costs of actually running the property.

Here’s the good part: you can stay ahead of this. If you understand the average operating expenses for apartment properties and where that money usually goes, you can make smarter plans and protect your returns. Let’s break it down so you can see what’s typical, what often gets overlooked, and how to manage these costs better.

Defining Operating Expenses in Apartment Properties

When you own an apartment building, the money doesn’t just go in and out through rent and the mortgage. There’s a bunch of smaller (and not-so-small) costs that keep the place running every month. Things like utilities, repairs, property taxes, insurance, and paying a manager if you’re not doing it yourself. All of that falls under operating expenses.

What doesn’t count? Big one-time upgrades. For example, if you replace the roof or install new elevators, that’s a capital expense, not an operating expense. And even though your loan payment might feel like an expense, it doesn’t go in this category either. A lot of beginners mix that up and end up with messy numbers.

The reason this matters is because of Net Operating Income (NOI). That’s basically the number everyone cares about—lenders, appraisers, even future buyers. It shows what the property actually makes once expenses are paid. If you forget to include some costs, your NOI will look higher than it really is, which can cause problems later when the real bills show up.

Typical Range of Operating Expenses

Across the industry, apartment operating expenses usually eat up 35% to 50% of gross rental income (GRI). This is known as the Operating Expense Ratio (OER).

For example, if your property collects $1 million in rent each year and your OER is 40%, you can expect $400,000 to go toward operating expenses, leaving $600,000 before debt payments.

Here’s a quick table showing what this might look like for properties of different sizes:

Here’s a quick side-by-side to keep it simple:

Property Size	Gross Rental Income	OER	Estimated Expenses
10-unit building	$180,000	45%	$81,000
50-unit building	$900,000	40%	$360,000
200-unit complex	$3,600,000	35%	$1,260,000

If your expenses consistently go above 50%, it’s a red flag. Either the property has unusual costs, or management isn’t controlling expenses well.

Major Categories of Apartment Operating Expenses

When you look at your bottom line, the biggest costs usually fall into a few buckets. Knowing what they are helps you budget smarter and avoid surprises later.

Property Taxes

For most apartment owners, property taxes are the single biggest expense. The tricky part is they’re not fixed forever. Local governments reassess values, and in hot markets that can mean a sharp jump in your bill right after a purchase. If you don’t factor that in, the hit to your cash flow can be painful.

Insurance

Insurance isn’t optional. It protects you from things like property damage, liability claims, and sometimes floods or earthquakes depending on where the property sits. Rates swing based on the building’s age, construction type, and past claims. A ballpark range is $300 to $500 per unit each year, but if you’re in a high-risk area, expect more.

Utilities

Water, power, gas, and trash service can drain income fast if you’re covering them all. Some owners push those costs onto tenants, but that depends on the setup and lease terms. A lot of landlords are moving toward submetering so tenants pay their own usage. It’s an upfront cost, but it usually pays for itself over time.

Repairs and Maintenance

Even new properties need regular upkeep. Leaky faucets, landscaping, pest control, cleaning common spaces, it all adds up. A safe rule of thumb is setting aside 5% to 15% of rental income for maintenance. Preventive work saves you from bigger repair bills later, but you should always leave room for the unexpected.

Property Management Fees

If you hire a management company, plan for 4% to 10% of your rental income going their way. In exchange, they’ll handle tenant calls, leasing, rent collection, and compliance issues. Some owners prefer to self-manage to save cash, but it means giving up a lot of time and dealing with stress directly.

Payroll and On-Site Staff

For large complexes, full-time staff like maintenance crews or leasing agents are necessary. Payroll adds up, but it often improves tenant satisfaction and retention, which reduces turnover costs.

Administrative and Marketing Costs

These include advertising vacant units, background checks, accounting software, and small legal filings. While not huge individually, they’re steady and can make up a few percent of revenue.

Additional (Often Overlooked) Operating Expenses

Not all expenses are obvious upfront, but they still affect your bottom line.

Turnover costs: Cleaning, repainting, and lost rent between tenants can be significant.
Legal and compliance fees: Evictions, lease drafting, and local housing regulations add costs every year.
HOA or condo dues: If the property is part of an association, fees are mandatory.
Security expenses: Guards, cameras, or alarm systems are often necessary in urban or higher-crime markets.

These overlooked costs often surprise new investors and should be part of your budget from day one.

Factors That Influence Operating Expense Levels

The size, age, and type of property all affect what you’ll spend.

Property Size and Age

Older buildings usually require more repairs and higher maintenance budgets. Larger complexes often benefit from economies of scale, lowering per-unit costs.

Location and Local Market

Taxes, utilities, and insurance differ by region. For example, insurance is much higher in hurricane zones compared to inland markets.

Property Class (A, B, C)

Class A buildings with more amenities and staff cost more to operate but also bring in higher rents. Class C buildings may save on amenities but usually face more repair expenses.

Ownership and Management Style

Hands-on owners can reduce costs but invest more personal time. Professional managers may increase expenses slightly but often run properties more consistently.

How to Calculate and Benchmark Operating Expenses

The most common formula is:

OER = Operating Expenses ÷ Gross Rental Income
Example: A 50-unit property earns $900,000 per year in rent. If expenses are $360,000, then OER = 40%.

Investors also use T-12 reports (Trailing 12 months) and pro forma statements to track real costs. Lenders and buyers rely on these to confirm numbers before approving loans or purchases.

Strategies to Manage and Reduce Operating Expenses

You can’t avoid operating expenses, but you can keep them under control. Some strategies include:

Negotiate bulk service contracts for internet, trash, or landscaping.
Run preventive maintenance programs to avoid major emergencies
Use energy-saving upgrades like LED lighting and low-flow plumbing.
Compare insurance rates every year to find better coverage.
Adopt property management software to reduce admin time and mistakes.

Small improvements in these areas often add up to significant savings over time.

Average Operating Expenses in Practice: Case Studies

Let’s see how this plays out in real-world examples:

10-unit property: Lower payroll but higher per-unit utility and repair costs. OER often around 45%.
50-unit suburban property: More balanced with some management fees and occasional staff. OER closer to 40%.
200-unit urban complex: Full staff and higher taxes, but economies of scale bring OER closer to 35%.

These examples show why benchmarks matter. A “good” OER depends heavily on size, location, and property class.

Why Accurate Expense Forecasting Matters for Investors

Getting expenses right is more than bookkeeping. It affects your Net Operating Income (NOI), which determines the property’s value. Small errors in expense forecasting can swing valuations by millions.

Lenders also examine your expense ratios closely. If your numbers look unrealistic, they’ll assume the deal is risky, which can mean stricter loan terms or even a failed approval. Accurate forecasting keeps your deals strong and your returns reliable.

FAQs

What percentage of rental income goes to operating expenses?

Most apartment properties fall in the 35% to 50% range, though location and management style can push numbers higher or lower.

Are operating expenses tax deductible?

Yes, most day-to-day operating expenses are deductible. Capital improvements, like a new roof, are not.

What’s the difference between operating expenses and capital expenses?

Operating expenses are ongoing costs like utilities and repairs. Capital expenses are large, one-time investments like new HVAC systems.

How do lenders evaluate operating expenses?

They review T-12 reports and compare your expenses against industry averages to see if your projections are realistic.

Can operating expenses be passed on to tenants?

Sometimes, yes. Utilities and property tax increases can often be structured as tenant pass-throughs, depending on lease terms and local laws.

Conclusion

Expenses are a big part of running an apartment property. They often take up around 35% to 50% of rental income, depending on the building’s size, age, and location. Knowing what to expect can make the difference between steady cash flow and constant stress.

At RTI Bridge Loans, we work with California investors every day to line up financing with the real numbers behind multifamily deals. If you’re looking at your next purchase, give us a call. We’ll help you set up funding that fits your budget and supports your long-term goals.