Residential Expense & Capital Cost Analysis Checklist

Overview I ran into a deal once where when asked for expenses, the seller's response was, "If you do not understand your expenses to operate this deal, you should not buy it."

While this perspective has issues, the purchaser must understand their own cost to operate an investment. Methodically, consistently, and accurately determining the cost to operate and also the cost to acquire an investment is a critical investment process.

Purpose · Define each key expense & capital cost area that a properly planned and executed investment will require.

· Provide guidance assisting a well executed analysis.

· Offer checks and balances to prevent misuse of the checkslists and guides provided.

Limitations First, the investor should avoid considering this checklist the total set of actions for a project. Individual projects have individual needs. Varying jurisdictions have different requirements for transfer taxes, permitting, occupancy rights, and more.

Overcoming Limitations Review your cost elements with experienced investors, lenders, appraisers, legal counsel, accountants, and property managers.

Review other project offers and transactions.

Review tax returns for similar projects.

Recognize that with all of this, as the investor you must take direct responsibility to verify your understanding, assumptions, bids, and agreements for suitability and deliverability at the costs offered.

Project Acquisition Capital Needs and Cost Checklists Acquisition Capital Costs and Expense Checklist Regardless of jurisdiction, country, state, province, the following list describes serious attention. The local equivalent steps may be somewhat different; However, this list if followed in principle will assist avoiding an investment error, may increase long term return opportunity, and provides a mechanism for risk mitigating plans.

Letter of Intent

Sales Contract

Operating Agreement

Offering and / or Business Plan


Lien Search

Background Search

Title Search

Title Insurance



Phase I Environmental (Phase II if significant finding incident on Phase I)

Property Condition Report (for commercial properties) or Property Inspection (or for 1-4 unit home purchases – house inspection, termite inspection, radon inspection or local equivalents)

Investors physical inspection, site and market review

Market Study

Lender's Counsel

Lenders Application Fee

Loan Origination Points

Mortgage Insurance

Purchaser's Counsel

Transfer and Recording Taxes or Other Local Equivalent

Initial Insurance Payment

Initial Utilities Set Up

Initial Operating Reserve

Enhancements Bid Management

Property Records Review

Lease Review and Rent Roll Analysis

Expense, Bank Record, and Check Register Analysis

Operating Expense and Cost Checklist Lenders and buyers always want to see the historic expenses. While a prudent step, lenders and buyers often take the historical expenses as gospel. As investors, avoiding this assumption is critical to avoid major missteps that can cause a failed or poorly performing investment.

Next, lenders rely on the Property Condition Report to determine reserves. Often investors, hope or seek that the improvement reserve described will come in low thus reducing the closing capital reserve requirements.

Accurate and adequate capital reserves serve investors best. Further, if the investor can show the actual cost for PCR requirements, justification for a lower reserve legitimately exists.

Operating Expense Checklist


Insurance including fire, wind, flooding weather, workman's comp, umbrella liability, and others as needed

Landscaping and Grounds


Trash Removal


Locks and keys



Manage Fee



Swimming Pool

Office Supplies & expense


Bank Charges

Credit and Background Checks

Marketing, Advertising and Promotion

Resident Relations

Lease agreements





Repairs and Maintenance:
O Grounds
O Buildings
O Unit
O Common Area
O Amenities
O Office / Clubhouse

Debt Costs
O Interest
O Principal

Summary Investor should account for or positively eliminate the items described here.

Investors should not assume that this checklist includes everything for any given property. However, using this checklist will go far towards avoiding any oversights during the planning and due diligence.