Does "new tenant fee" charged by PM companies kill annual profit
Hi,
I am starting investing in cashflow markets after focusing in the past only on appreciation (no other choice in California) . However I realize that in these markets, profit per unit is so minimal that even a short vacancy can turn into a negative cashflow situation.
Here is an example, please let me know if I am missing something;
Assumptions: Purchase price: $100k. Monthly rent: $1000 (1% rent/value ratio). 20% downpayment. 10% CoC return (or $2000). Vacancy rate: 5%. In addition, let's assume that all other expenses were correctly estimated including property management fees (10%). I think that this type of property would look like a good cashflow property for most investors.
Now let's assume that we have a vacancy and between the time needed to repaint the unit, change the carpet and for the PM company to find a new tenant, we lose 30 days of rent. In addition, the PM charges their "new tenant fee" equivalent to one month of rent ($1000). So our CoC is now only 5% ($1000). And in addition, one month lost is actually 8.3% vacancy (more than budgeted) so our CoC is lowered further to 3% ($600 annual or $50/month).
Since a vacancy is normally expected every 2 or 3 years max, does it mean that every 2 or 3 year, I must expect to pretty much make $0 annual profit? And possibly lose money if I get an unexpected maintenance issue costing more than $600.00
Thanks in advance for your comments and thoughts.
Best,
Cy