Small Business Banker · Duluth, MN · Member since 2016 · 11 posts · 3 votes
So I'm about ready to begin looking for a first investment property but I need to know how much I should have up front to get the deal done and maybe have a starter safety net for any up front expenses.
I am planning to buy a 2-3 unit property for around 100k that is rentable as-is with rents totaling between 1-1.5k/Month. I will need to put 25% down for the loan and will need to show 6 months worth of expenses in additional funds but beyond that should I also have $X set aside for the first year's expenses? I will have the 25% to put down but the 6 months expenses is in a retirement account I can touch but would prefer not to. I plan to hire a property manager from the start too.
Thank you so much for your help!!
Investor · Pawleys Island, SC · Member since 2015 · 324 posts · 385 votes
8y
Glad to see a new investor that appears to have his financial house in order!
This is a lot harder question to answer than you would expect. That is probably why no one wants to tackle it. I'm sure you have looked at the rules of thumb like 10% for maintenance and 10% for vacancy + CAPX hold backs. The problem is these are averages over a total portfolio. With just a few doors, the numbers can skew significantly in either direction.
I have 8 rentals. YTD my maintenance expense is 10.21%. Last year it was just 4.80%. 5 rentals currently have maintenance expenses under 4% YTD. The other 3 are at 8% of rent, 19% of rent, and 52% of rent. Yes, one unit is at 52.56% of rent YTD. It's a long story and doesn't even include CAPX as I put in a new HVAC in June, which is not included in this number.
The 19% repairs cost irregular as well as I had a tenant in the unit since 2015 who moved out in May, and the unit had last been renovated in 2013. There was a lot of wear and tear type upgrades needed. Also, the month of missed rent (vacancy) skews the percentage as I don't account for vacancy directly in my bookkeeping.
As far a vacancies, I had no turnover in 2017. YTD, I have had 4 move outs.
This has been a tough year as you can see especially after a stellar 2017.
Now that I have terrified you. I would hold back in cash the rule of thumb percentages each month, but have a credit card or line of credit available for the unexpected.
Small Business Banker · Duluth, MN · Member since 2016 · 11 posts · 3 votes
7y
@Anna Buffkin thank you so much for your thorough answer! Unfortunately I didn’t check BP often so I’m just seeing it now, but it’s certainly helpful! I’m finally moving forward with purchasing a small duplex with a fair amount of cash reserves and excessive credit card lines thanks to travel hacking (I don’t intend to use them, but it’s nice to have them there). I can live without the cash flow from the property so I intend to throw the entire proceeds from the property into a separate account until I get a good handle on all of this.
I hope 2019 is a good year for you and your business so far!