Best practices for predicting vacancy, repairs and Cap Ex rates of LTRs?

Question

I'm finding rates ranging from 3-10% of monthly income for each of these across different sources. This obviously has a huge impact on analyzing the cash flow of a potential property. Reading the BP 2024 report the advice is to be conservative so up until now I've been analyzing everything with:

Vacancy - 10%

Repairs - 10%

Cap Ex - 5% (although this is highly dependent on the age of the home and the value of the home, so I'm tracking that with a bit more nuance)

Any advice? Am I being too conservative?

Daniel McDonald · Answer

Where are you located? That makes a big difference. I like the idea of starting off conservative, because then honestly it can only improve. Run the numbers with at least 15% total, 25% max. I think you can do things in all three categories to prevent/keep the costs lower. Truthfully I think it's impossible to know these numbers for real until you own the property. Every property behaves differently. I ran my numbers with 15% a year but after 4 years I feel more confident that I know exactly what they are. I haven't had to flip the tenant yet, maintenance/repairs is pretty predictable, and I did a lot of capex stuff when I bought it so that gave me some time to save a less on that one (5%). If you need something big in the next few years you'll have to boost that one.

Nathan Harden · Answer

If it's a LTR and you're running into 10% vacancy, then you're doing something wrong.

It all depends on where you're from, the property and the area. If you're buying a house built in 1925, you're going to put more money away for CapEx & Repairs than if you were to buy a house built in 2010.

Capex, repairs and Vacancy rates are not a one size fits all.