The per-room operating cost number everyone uses is the one that excludes the manager.

The lost-room calculation is right, but the liability reclassification point is the one that actually changes the structure of the deal. If the on-site person gets classified as an employee rather than a tenant with duties, you are now looking at payroll taxes, workers' comp, and potentially wage-and-hour exposure on overnight hours, none of which appear in any management line I have seen in a boarding house pro forma. Confirm that classification question with an employment attorney before you set the compensation structure, because the answer varies by state and the IRS and your state labor board can disagree on the same arrangement. What jurisdiction is the property in, because some states have specific rooming house statutes that effectively decide the classification question before you even draft the agreement?

This is a genuinely useful breakdown for anyone trying to read a boarding house pro forma for the first time, so let me explain what the original post is describing before I add one more angle.

A pro forma is the projected income-and-expense sheet a seller or broker puts together to show what a property earns. Gross income means total rent collected before any costs come out. When the post says management is modeled at 8 to 10 percent of gross, it means the seller assumed a manager who costs about $624 to $780 a month on a property taking in $7,800. That is a reasonable assumption if the manager works part-time and goes home at night.

The point being made is that boarding houses with 12 residents often cannot run that way. If licensing or practical necessity requires someone to sleep on-site, that person typically lives in one of the rooms for free or at a reduced rate. A room that could have rented for $650 now produces nothing, or close to nothing. The true cost of management is that lost rent plus any direct pay, which pushes the real figure to 15 to 18 percent of gross by the poster's math.

The thing a first-time reader might not think to check: ask the seller how long they have owned the property and whether they were the on-site manager themselves. Owner-operators frequently leave their own labor out of the pro forma entirely, which makes the numbers look cleaner than they are. A licensed accountant or attorney experienced in rental operations can help you reconstruct what the numbers would look like with a paid manager in place.

Everything above is a starting point for your own research, not a number to use in an actual deal.

What type of property are you looking at right now, and do you know whether the current owner is living on-site?

The employee versus independent contractor line is where this gets expensive in a way the percentage alone does not capture. If the on-site person has set hours, follows your house rules, and handles maintenance tasks you assign, most state labor boards will call that an employment relationship regardless of what the agreement says, and then you are into payroll tax, workers' comp, and potential minimum wage obligations on top of the lost room. The 15 to 18 percent range you are describing can go higher once those costs land, because a room credit is not a wage substitute if the classification goes against you.

The specific thing I would confirm before closing is whether the current operator has ever received a written complaint from the on-site person about conditions or compensation, and I would ask the seller's attorney directly rather than through the broker, because that document creates liability that follows the property. I would also pull the local zoning definition for rooming house versus single room occupancy, because some municipalities impose a minimum staffing ratio that eliminates the part-time option entirely and makes the on-site cost structural rather than discretionary. What jurisdiction is the property in, and has the seller provided any written agreement with the current on-site person?