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A couple of questions regarding pro forma analysis

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Cam Forrey

Boise, Idaho

Feb 23 '13, 11:49 AM


Hi guys, longtime bigger pockets lurker here.

I am looking to buy a 3-4 unit property in my hometown to buy and hold. A couple questions for everyone on building good pro forma analysis before I get in touch with a seller.

1) How do you determine a vacancy factor for a 3-4 unit property?
2) How much should I put in the cash flow analysis for repairs/maintenance?
3) I plan on living in one of the units, from a tax perspective is PMI a deductible expense?
4) In my analysis I have a vacancy loss, management fees, replacement reserves (repairs and maintenance), property taxes, insurance, PMI, and utilities. Any other expenses I need to be including in my analysis?

Thanks for any insight, looking forward to being a part of the community.



Bill Gulley

Real Estate Investor from Springfield, Missouri

Feb 23 '13, 01:10 PM
1 vote


Maintenance depends on condition 5 to 10% o gross rents should do.
Tag 1/12th each month or 1/4 every 3 months, consider what could go wrong.

PMI is not tax deductible individually but is an expense in business.

Consider 10% vacancy, estimate when it will be leased for the first time and put month in at the end it's a guess so you can delay income well, lots of ways to play what if.

Any mortgage payments with that PMI? :)



Ben Leybovich

Real Estate Investor from Lima, Ohio

Feb 23 '13, 01:25 PM


The vacancy factor is a function of the market. Furthermore, even in the same city vacancy can swing substantially from one local to another. Unfortunately you will need to do some research. Hopefully nothing over 10%.

Are you handy? Do you plan to auger toilets or call someone to do it? Better safe than sorry…

Wouldn’t you agree @Bill Gulley Is a funny guy!



Medium_logo_03Ben Leybovich, JustAskBenWhy.com
E-Mail: [email protected]
Telephone: 1.888.508.9643
Website: http://www.JustAskBenWhy.com/live
Ben Leybovich, Syndicator / Creator of Cash Flow Freedom University http://www.JustAskBenWhy.com


Bill Gulley

Real Estate Investor from Springfield, Missouri

Feb 23 '13, 01:37 PM
1 vote


Well, just thought there might be...LOL

BTW, welcome to BP Cam!

Hey, 8,500 posts I'm wearing out the second lap top and one notebook bit the dust! :)



Cam Forrey

Boise, Idaho

Feb 25 '13, 03:40 PM


Originally posted by Ben Leybovich:
The vacancy factor is a function of the market. Furthermore, even in the same city vacancy can swing substantially from one local to another. Unfortunately you will need to do some research. Hopefully nothing over 10%.

I understand that I need to do some research, I was just curious where I can conduct said research. I am having a hard time tracking down any reliable data on vacancy for anything other than apartments. Maybe that is the best data I can get my hands on?

In the meantime I will plug in 10% as a nice conservative placeholder.

Thanks so much for your guys' responses!



Jon Holdman Moderator

SFR Investor from Wheat Ridge, Colorado

Feb 25 '13, 03:54 PM


IMHO, its dangerous to try to do a super detailed analysis. The temptation is to cut back on each slice until you're underestimating the expenses. Read the sticky thread in the landlording forum about the 50% rule. That rule of thumb says that 50% of your gross scheduled rents will go toward expenses, vacancy, and capital. The remaining 50% is used to pay your P&I payment (taxes and insurance are in the first chunk) and give you some profit.

Now, property management is a big chunk of that 50%. About 14%, in my estimation. That's 10% off the top plus half a month, once a year to fill vacancies. So, if you self manage, you can reduce that 50% to 36%. That assume you're willing and able to do the management.

Having that rough estimate, look for anything that might make it higher. Older property, landlord paid utilities, rough area with lots of turnover, etc.

As far as accounting for your self, I would estimate the expenses based on full occupancy. Now, you will be, in some ways, a better tenant than average. But you may tend to spend more on taking care of your own unit. Then, subtract off your chunk of the rent. So, if it was fully occupied and you're self managing, I'd estimate cash flow as:

cash flow = (rent) - (rent * 36%) - P&I

Rent here means gross scheduled market rent for all units.

With you occupying one unit, I'd use:

cash flow = (rent) - (rent * 36%) - P&I - (rent for your unit)



Jon Holdman, Flying Phoenix LLC


Bill Gulley

Real Estate Investor from Springfield, Missouri

Feb 25 '13, 07:23 PM


All well and good, but it depends on your market. Ask around with other investors, at REI meetings if you have them, ask lenders what they see.

If you applied rules of thumb, like 2% in my market, you'd never buy reantals. You need to nail it down, look at the tax angles, hopeful appreciation, if you buy crappy properties today and you don't improve them, you'll have nothing more than a job, IMO.

Look to your market, not ratios to buy into. Good luck...



Cam Forrey

Boise, Idaho

Feb 27 '13, 12:28 PM


Originally posted by Jon Holdman:
...

Originally posted by Bill Gulley:
...

Thank you both so much for the great responses. Much appreciated.



Jeff S. Donor

Real Estate Investor from Portland, Oregon

Feb 27 '13, 03:31 PM


Looks like you have a strong rental market: partial article from Boiseinvestmentproperties.net

Tony A. Drost
http://www.frpmrentals.com/
http://www.boiseinvestmentproperties.net//
First Rate Property Management, Inc
Boise, ID

Market Update On Rents And Vacancy

Below are the results of the SW Idaho Chapter of the National Association of Residential Property Managers 4th quarter survey. It is important to know that NARPM members typically manage single family homes and small multi-family dwellings. So this data does not include large apartment complexes that usually have many amenities, such as pools, clubhouses, workout facilities, computer center, etc. Because of those amenities, those properties typically rent for much more.

VACANCY RATES:
Below are a line graph showing vacancy for single family home rentals and multi-family rentals. As you can see, overall rental vacancy was just about 3% at the end of 2012. It was interesting to see that multi-family rental vacancy, over 4%, was over twice that of single family homes, at about 2%. Why? Well, for certain, the inventory or supply of multi-family dwelling is quite a bit more than Single family home rentals. So that could be a factor. Another factor could be that demand for single family rental homes has improved. As we have mentioned in past posts, we are seeing well established people choosing to rent instead of buying. Lastly, single family home rental tenants tend to stay longer and being winter, they are choosing to stay put for now.



Brent Williams

Real Estate Coach from Katy, Texas

Feb 27 '13, 04:29 PM


Question for you guys - when talking about a 3 or 4 unit property, how much does the market vacancy really affect that one property? Realistically speaking, Cam will probably devoting a lot more labor/time per unit than the average multifamily unit, and assuming some good marketing, I can't imagine it would follow market vacancy rates unless his property has issues.



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