Hello, I'm analyzing several deals for my first rental property and I need some assistance for a 2005 duplex in phoenix. What can one estimate for a % capital expenditures for a unit like this? Is vacancy average usually a 5% or 10% as an estimate? What about fixed landlord expenses if the tenant pays for all of them? I only presume monthly insurance and property tax? Also, what future assumptions would you use for annual income growth, annual pv growth, annual expenses growth? 3%? Thank you so much for the help!
Unfortunately all of your questions are extremely difficult to answer without intimately knowing the city, neighborhood and the specific details about a house. So the following are just my best guesses, nothing more:
Maintenance: You didn't ask, but I would use 10% because it's a multi-family. Could be more, depending on the quality of tenants you will get.
Cap Ex: Relatively new building, although don't know the condition or the structure and systems. I would use around 8%.
Vacancy: Depends on the area, how fast you can rent it and whether tenants will be Section 8 or not. Best thing you can do is ask your prospective property manager for advice. I would use 10% since this is a multi-family.
Fixed Landlord Expenses: Not sure which ones you have in mind. If tenants pay for all utilities, the only ones you will be responsible for are usually landscaping, insurance and property taxes. Also don't forget property management.
Insurance/Property Tax: These are typically paid yearly. You can go on the county's tax assessor website (just google it) to find the exact taxes due on the property. Note that they may go up if the house will be re-assessed during this sale. For insurance, you can get a quote from a local agent. Hard to say how much it will be, probably upward of $600/year.
Annual Growth: Again, entirely depends on the area, but I'm usually very conservative with this and would not use anything more than 2%. Maybe even 1%.
thanks much! How much would you increase expenses by yearly? Faster than growth?
I'd use 10% capex
I wouldn't worry too much about the rental income/expenses increase numbers. I would set them both to 2%. I would probably set appreciation to 2% to be conservative, but again that depends on the area and the market in general.
But I would focus on the current numbers more than projected numbers - in other words, look at the cash flow when you buy, look at your equity when you buy, etc.
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