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Key Takeaways
- The initial minimum monthly running cost required to sustain the core REIT structure before asset acquisition is approximately $60,000, dominated by $41,667 in monthly payroll for six essential full-time employees.
- Achieving profitability requires navigating a significant negative cash flow period, with the model projecting a breakeven date 26 months from launch (February 2028) following a $900,000 projected EBITDA loss in the first year.
- While corporate overhead is fixed, the largest future cost drivers will be variable property-level expenses, including maintenance, property taxes, and debt service, which scale immediately upon asset acquisition.
- To cover the extended period of negative cash flow and operational setup, the REIT must secure a substantial capital reserve, with the model showing a minimum cash requirement dipping to $655 million by November 2030.
Running Cost 1 : Corporate Payroll
Payroll Commitment
Your initial management team payroll hits $41,667 monthly by 2026 projections. This fixed cost is a significant drag on early operating cash flow until asset acquisition volume generates sufficient management fees. Honestly, this is your primary non-asset related burn rate.
Staffing Cost Breakdown
This estimate locks in six full-time employees (FTEs) for 2026 operations, covering essential governance and management roles. To nail this down, you need finalized salary quotes plus employer burden rates for taxes and benefits applied to the base compensation for all six hires. What this estimate hides is the timing of hiring.
- Covers 6 FTEs total.
- Includes CEO, Property Manager, Financial Analyst.
- Projection date is 2026.
Managing Fixed Headcount
Avoid hiring all six roles before initial capital deployment is secured and deployed into properties. A common mistake is treating specialized roles, like the Financial Analyst, as immediate needs when external consultants suffice temporarily. Phasing in staff saves runway cash now.
- Use fractional CFOs early on.
- Delay hiring non-revenue roles.
- Benchmark salaries against regional REIT peers.
Runway Impact
Payroll is a non-negotiable fixed commitment that directly impacts your cash runway. If revenue lags, reducing this $41,667 monthly spend requires difficult severance actions or significant restructuring of the management entity structure. Keep hiring lean until rental income stabilizes.
Running Cost 2 : Office & G&A Overhead
Fixed Overhead Baseline
Your baseline monthly Office & G&A Overhead is fixed at $6,000, which must be covered before property-level revenue hits. This cost is small relative to payroll ($41,667) but essential for compliance and operations. You need consistent cash flow just to keep the lights on.
G&A Cost Allocation
This $6,000 monthly overhead covers the basic infrastructure needed to manage the REIT structure. The largest component is $4,200 for office rent. You also budget $850 for property management software subscriptions and $950 for utilities and general supplies. This is separate from variable OpEx and debt service.
- Rent: $4,200
- Software: $850
- Utilities/Supplies: $950
Controlling Fixed Spend
Since this is fixed, reducing it requires tough decisions now. Software subscriptions, especially property management tools, often have tiered pricing; review usage against the $850 budget to ensure you aren't overpaying for unused features. Avoiding long-term office leases defintely helps keep rent at $4,200 manageable.
- Audit software licenses now.
- Negotiate utility rates annually.
- Delay office expansion plans.
Overhead Leverage Point
At $6,000 monthly, this overhead represents about 11.5% of your initial fixed payroll cost of $41,667. If you secure a major institutional investor early, this fixed cost base absorbs growth well, but it creates immediate pressure until revenue covers the $6k floor.
Running Cost 3 : Property Insurance
Insurance Baseline
Your initial property insurance expense is a fixed $3,500 per month, covering liability and damage across your starting portfolio of owned and rented assets.
Cost Inputs
This $3,500 monthly premium is a fixed operational cost protecting your initial real estate holdings. It covers both property damage and liability exposure for owned and rented assets. Inputs needed are asset valuation and location risk profiles to secure the quote.
- Covers liability risks.
- Protects owned assets.
- Fixed monthly charge.
Cost Control
Managing this expense means aggresively reviewing deductibles; higher deductibles lower the premium, but increase immediate out-of-pocket risk if a claim hits. Don't bundle property insurance with other corporate policies unless the discount is substantial. Anyway, aim to secure multi-year lock-ins if market rates are low now.
- Review deductibles carefully.
- Avoid unnecessary bundling.
- Lock in multi-year rates.
Scaling Impact
Since this $3,500 is fixed, it must be absorbed by the initial portfolio's operating income or capital reserves until acquisitions scale. If your starting asset base is small, this fixed cost represents a higher percentage of your total insurance spend than it will later.
Running Cost 4 : Debt Service (Interest)
Mortgage Cash Flow
Debt Service covers the required monthly mortgage payments, including both interest and principal, for owned assets like the Oakview Loft. This is a huge cash outflow that must be tracked separately from standard fixed overhead costs like rent or software fees.
Estimate Inputs
To budget this, you need the loan amortization schedule for every property acquisition. Inputs are the outstanding principal balance, the mortgage interest rate, and the term length. REITs must model this against expected rental income from the held portfolio.
- Principal balance owed
- Agreed interest rate
- Loan term length
Manage Payments
Since this payment is contractual, reduction relies on upfront structuring decisions. Avoid short-term balloon payments if initial cash flow is tight. Refinancing options usually appear only after assets stabilize, often 24 to 36 months post-acquisition.
- Negotiate lower initial rates
- Extend amortization schedules
- Minimize prepayment penalties
Equity Impact
Failing to accurately forecast principal repayment means you underestimate true capital needs for ongoing operations. This repayment shrinks your equity base unless offset by new capital raises or aggressive property sales.
Running Cost 5 : Property-Level Operating Expenses (OpEx)
Scale Variable OpEx
Property-Level Operating Expenses (OpEx) are your primary variable costs tied directly to asset performance, covering maintenance, repairs, cleaning, and utilities. These expenses scale directly with how many properties you acquire and their specific needs. Accurate per-asset budgeting is critical for projecting the cash flow available for shareholder distributions.
Estimating Property Costs
You must model OpEx based on asset class, not just volume. For a portfolio including Oakview Loft and Maple Suite, estimate costs per square foot or per unit. Inputs needed are anticipated repair budgets (e.g., 5% of gross revenue for value-add assets) and utility projections based on property type. This cost directly erodes the cash flow available for the debt service payments. This modeling is defintely harder than calculating fixed overhead.
- Model HVAC replacement reserves annually.
- Track cleaning costs per tenant turnover.
- Use $1.50/sq ft as a starting benchmark.
Controlling Property Spend
Managing OpEx means standardizing vendor contracts across the portfolio to gain volume discounts. Avoid reactive repairs; proactive preventative maintenance saves money long-term. A common mistake is underestimating utility costs for commercial spaces versus residential units. Aim to keep total OpEx, excluding taxes, below 25% of gross rental income for stable, fully-leased assets.
- Bundle maintenance contracts regionally.
- Use energy audits for utility savings.
- Review repair quotes rigorously before approval.
OpEx vs. Fixed Costs
Unlike fixed costs like your $41,667 corporate payroll or $5,300 monthly legal budget, OpEx volatility requires maintaining a higher cash reserve buffer. If acquisition volume accelerates rapidly, these variable expenses will spike faster than your fixed overhead structure can absorb.
Running Cost 6 : Legal & Compliance Fees
Compliance Budget Set
Your fixed monthly spend for essential legal and accounting support is $5,300. This covers critical compliance work needed to keep the REIT structure sound and meet regulatory filing deadlines. Don't skimp here; it's non-negotiable overhead for a publicly structured entity.
Essential Service Costs
This $5,300 monthly allocation locks in your core compliance team. Legal counsel handles required filings, while accounting ensures the REIT structure remains valid for tax purposes. If you delay setting up these contracts, expect immediate regulatory risk.
- Legal counsel: $2,800 monthly retainer.
- Accounting services: $2,500 monthly retainer.
- Mandatory for REIT status maintenance.
Managing Compliance Spend
You can't aggressively cut these costs without risking audit failure or delisting. Focus instead on scope creep. Ensure the legal retainer covers only required filings, not general corporate advice. Negotiate fixed annual review fees instead of hourly billing for accounting tasks, defintely.
- Avoid hourly billing for routine filings.
- Bundle annual compliance reviews together.
- Ensure scope is tightly defined upfront.
Compliance Non-Negotiable
Missing these $5,300 payments directly threatens your REIT status, which is far costlier than the retainer itself. Budget this as hard, non-negotiable fixed overhead, just like your office rent, because compliance is the cost of entry for liquid real estate investment vehicles.
Running Cost 7 : Property Taxes & Assessments
Taxes Are Non-Negotiable
Property taxes are unavoidable operating costs tied directly to the assessed value of every asset your REIT owns. These liabilities, though calculated annually, must be budgeted for in your monthly or quarterly cash flow planning. Missing these payments triggers serious compliance issues, so plan for it defintely.
Modeling the Assessment Cost
To model property taxes, you need the local jurisdiction’s millage rate applied against the official assessed value of each asset. This cost scales directly with your acquisition volume, so it’s variable, not fixed overhead like payroll or software. Estimate this based on historical rates in target zip codes; it’s a major budget driver.
- Assessed value per property
- Local millage rate (%)
- Payment schedule (monthly/quarterly)
Controlling Tax Exposure
You can’t eliminate property tax, but you can contest the assessment annually if you believe the valuation exceeds recent comparable sales data. A common mistake is assuming the purchase price equals the assessment base. Compliance is key; late payments incur penalties that erode returns quickly.
- Contest high assessments yearly
- Track local assessment cycles
- Ensure timely quarterly payments
Impact of Value-Add
Since property taxes are based on assessed value, rapid portfolio appreciation from renovations will immediately increase your future tax burden. Factor this escalation into your five-year projected operating expenses, especially when underwriting value-add strategies. This cost is non-negotiable.
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Frequently Asked Questions
Initial corporate overhead (non-payroll) is $18,000 per month, covering office rent, software, and compliance, before adding property-specific costs like taxes and debt service;