Repairs and Maintenance, CapEx, and Vacancy % Estimates 3BR/2BA
Member since 2020 · 13 posts · 5 votes
Repairs and Maintenance, CapEx, and Vacancy % Estimates 3BR/2BA
6 Replies
- Member since 2021 · 256 posts · 213 votes3y
Hi Nate,
I don't know what you mean by "excellent shape", but if the electrical, plumbing and roof are not brand new, I will immediately go for 10% CapEx.
If the condition of the house inside is excellent, and you feel comfortable with 5% for maintenance, so be it.
I don't trust fully what cities (government) is providing when it comes to date, so I would be conservative and stick with 10% for vacancy.
Just to clarify that this is what I would do. However!, If the house is cash flowing and you don't rely on the income from that house, I would not stress out much on these numbers. I know, I know, a lot of people will tell me that this is not right, but when I buy a property, I setup reserves for it anyway so I don't look at these numbers much. As long as the house Cash flows, Me getting depreciation, Appreciates and the loan is being paid down, I am good.
- Member since 2020 · 13 posts · 5 votes3y
Hey @Galen Ikonomov- Appreciate that response! No, the features are not new, so I will adjust accordingly. However, maintenance is very low (I know because I live in the house now!). Very sound home. And thanks for the tip on vacancy.
Also, glad you said this. I'm noticing there's quite the dichotomy on this forum of people who rent out for equity and those who live and die by cash flow. I'm the former. I don't plan on building an "empire" and will not be relying on this income whatsoever. It's an addition to my portfolio more than anything. Basically I would like to keep it for at least 30 years, make some mortgage-free income for however long I'd like, and sell whenever I'm ready to!
Is there a cash flow or COC you like to see? - Member since 2021 · 256 posts · 213 votes3y
Quote from @Nate Huber:
Hey @Galen Ikonomov- Appreciate that response! No, the features are not new, so I will adjust accordingly. However, maintenance is very low (I know because I live in the house now!). Very sound home. And thanks for the tip on vacancy.
Also, glad you said this. I'm noticing there's quite the dichotomy on this forum of people who rent out for equity and those who live and die by cash flow. I'm the former. I don't plan on building an "empire" and will not be relying on this income whatsoever. It's an addition to my portfolio more than anything. Basically I would like to keep it for at least 30 years, make some mortgage-free income for however long I'd like, and sell whenever I'm ready to!
Is there a cash flow or COC you like to see?Love it.
Yeah, minimum CoC I am looking it at is 11%.
- Member since 2018 · 2k+ posts · 1k+ votes3y
@Nate Huber Have you run capex and repair budgets? Percentages are okay for a quick guestimate. This would be a simple repair budget. Cost to rehab upon turnover+ the number of repairs per timeline. using your 6.2% vacancy, you are facing a turnover every 16 months. What is your cost to rehab? new paint and deep clean. Depends on the size. Let's assume $2500. How many service calls. I average about 1 per year. (leaky faucet, toilet clogged, garage door not working, etc). Average $150 per call. So 1.5*$150=$225. $2725/16 months turnover=$170 per month. Can mitigate the cost by touching up between tenants and repaint every 3-5 years.
Here is 1 item in a capex budget. Floors. Go to your favorite flooring store and ask about the commercial warranty. 10 years or less(carpet 5 years). Assume 2000 sf of flooring. My area it cost me around $6 sf. $12000/120 months lifespan=$100 per month for 1 item in a capex budget. Still have to save for roof, hvac, appliances, hot water heater, bath and kitchen remodel, exterior paint, driveways, etc.
- Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes3y
Quote from @Nate Huber:
If you're analyzing down to the penny, you have less room for a mistake. Historically, the national average for repairs is 10% so 5% is pretty thin even if you have a fully renovated home because material and labor costs are so high.
I recommend sticking to 10% for each of those categories. If you end up only spending 5% on maintenance, that's another 5% you can roll toward the next investment.
As for vacancy, that's dangerous to operate based on market averages. They have no way of measuring vacancy rates from private investors, so the data is suspect. Even if it were accurate, it doesn't reflect how you are going to perform as a new investor. Again, stick with the historical average of 10% and tweak it as you gain personal experience.
The DIY Landlord Book4.7248 Reviews - Realtor · Hanover Twp, PA · Member since 2018 · 3k+ posts · 3k+ votes3y
@Nate Huber, I think you're estimates are fine. I use 5% for each as my estimate and work to do better than those estimates.
Just for a frame of reference, 5% vacancy to me is around a turnover every 2 years assuming it takes me 4-6 weeks to put a new tenant in place. That is an estimate I feel I can beat either by working to shorted the time it takes me to turn a vacancy or by providing a good value proposition and retaining good tenants longer.
The same can be true of other categories. Inspections and preventative maintenance can lessen the long term cost averages to maintain a property. As can choosing durable materials that don't wear or damage as easily. Keep in mind just because a tenant causes damage doesn't mean you can force them to pay for it especially if the cost exceeds their deposit.
So, your budgeted estimates for these categories are as much about YOU and your approach to managing property as it is about the averages other people see.
Join the conversationCreate a free account to reply, vote on answers and follow this thread.