Real Estate Agent · Philadelphia, PA · Member since 2017 · 17 posts · 8 votes
Creating a savings plan and budget for the purchase of a duplex, from my understanding the following expenses typically include what I have below,what else am I missing ? Not including initial financing ,and rehab cost.
PITI
UTILITIES
CAPITAL EXPENDITURES
Landscaping/Maintence
I am using far more conservative numbers for my property; I am self managing but usually do 10% for management, 10% for CAPEX, 8% for maintenance, 8% for vacancy; these are percentages of the gross monthly rent (for this property, its $1900 rent income per month). If your property makes only $500 rent per month, chances are you need to raise your CAPEX/maintenance/vacancy budgets. A $2000 roof could be installed in a $500 per month property, or a $2000 per month property, for example. Just because you don't make as rent doesn't mean the costs are not comparable. A water heater cost and labor will be $800 in both units...list goes on and on.
Also, make sure you eval the property's current CAPEX state. I see I made a major deficiency in purchasing my current property with the age of the key items, e.g. gas furnaces, water heaters, washer/dryers, refrigerators, stoves, plumbing, electrical, etc. You need to try and guess the age or get the age and make conservative assumptions as to their replacement, or assume you need replacements right away and account for it in the purchase.
I'm two months into my purchase and both my maintenance and CAPEX budgets have 10% remaining for the rest of the year. Most likely my even conservative estimates were not conservative enough. You may want to consider a slider where you have to account for a high count of CAPEX/maintenance in YR1 to handle a majority of the issues, or go back to your seller and say the age of X is Y, and needs to be replaced, and it'll cost Z, so you'll take $ off to pay for it.
Other costs to bear - township/city costs (licenses, inspections, COs, registrations, etc.), common electric, water/sewer, garbage fees, tolls/gas/mileage, your time, HOA, etc. If these seem like overkill, just wait until your saddled with a $150 registration renewal you weren't aware of, and see what those types of things do to your cash flow. I'd rather know where every dollar will end up beforehand than guess and be surprised down the line.
@Nicholas Zornek correct. You're almost always going to have at least a month between tenants. I budget 8.3% for the first year and then lower it to 3% from year 2 on. Until the next tenant, then I start it all over again
@Nicholas Zornek, I apologize, I just saw your response. The vacancy rate is different for different locations (i.e. Philadelphia is around 6-7%). There are several ways to calculate for this expense. Some will just use a month of rent for this number, and others (such as myself and Jason DiClemente) will just take out the percentage associated with the area. I hope this helps answer your question. Thanks
@Nicholas Zornek, I apologize, I just saw your response. The vacancy rate is different for different locations (i.e. Philadelphia is around 6-7%). There are several ways to calculate for this expense. Some will just use a month of rent for this number, and others (such as myself and Jason DiClemente) will just take out the percentage associated with the area. I hope this helps answer your question. Thanks
If it's a 1 br. units preparer for high frequency turnover. That's why I prefer 2 or even 3 br units.
@Lana Lee, I tend to stay away from 1 bed units as well, unless it's too good to turn down. However, I still calculate for vacancy so I don't have to reach into my pocket again for that particular property.
@Nicholas Zornek
For my duplexes I budget PITI, 3% vacancy rate, 5% maintenance, 5% capex, 7-10% property management ,and actual utilities (if need be).
Around here, some markets have landlord paying water and sewer, and some have utilities completely separated so tenant pays all. And for duplexes, I require tenant to handle yard work and snow removal.
I am using far more conservative numbers for my property; I am self managing but usually do 10% for management, 10% for CAPEX, 8% for maintenance, 8% for vacancy; these are percentages of the gross monthly rent (for this property, its $1900 rent income per month). If your property makes only $500 rent per month, chances are you need to raise your CAPEX/maintenance/vacancy budgets. A $2000 roof could be installed in a $500 per month property, or a $2000 per month property, for example. Just because you don't make as rent doesn't mean the costs are not comparable. A water heater cost and labor will be $800 in both units...list goes on and on.
Also, make sure you eval the property's current CAPEX state. I see I made a major deficiency in purchasing my current property with the age of the key items, e.g. gas furnaces, water heaters, washer/dryers, refrigerators, stoves, plumbing, electrical, etc. You need to try and guess the age or get the age and make conservative assumptions as to their replacement, or assume you need replacements right away and account for it in the purchase.
I'm two months into my purchase and both my maintenance and CAPEX budgets have 10% remaining for the rest of the year. Most likely my even conservative estimates were not conservative enough. You may want to consider a slider where you have to account for a high count of CAPEX/maintenance in YR1 to handle a majority of the issues, or go back to your seller and say the age of X is Y, and needs to be replaced, and it'll cost Z, so you'll take $ off to pay for it.
Other costs to bear - township/city costs (licenses, inspections, COs, registrations, etc.), common electric, water/sewer, garbage fees, tolls/gas/mileage, your time, HOA, etc. If these seem like overkill, just wait until your saddled with a $150 registration renewal you weren't aware of, and see what those types of things do to your cash flow. I'd rather know where every dollar will end up beforehand than guess and be surprised down the line.
@Lana Lee, I tend to stay away from 1 bed units as well, unless it's too good to turn down. However, I still calculate for vacancy so I don't have to reach into my pocket again for that particular property.
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What’s to good to turn down in todays day with the interest rates and only bringing in say 1200 a month in rent. I found duplex, 1 bed 1 bath units. 97k 7.6 interest.
@Lana Lee, I tend to stay away from 1 bed units as well, unless it's too good to turn down. However, I still calculate for vacancy so I don't have to reach into my pocket again for that particular property.
.
What’s to good to turn down in todays day with the interest rates and only bringing in say 1200 a month in rent. I found duplex, 1 bed 1 bath units. 97k 7.6 interest.
It's different for different areas, which I assume you know (i.e. L.A., Austin, Miami etc...). So, if you're in a coveted market, 1,000-50,000 a unit would be too good to turn down. Otherwise, run your numbers, as things that are too good to be true, usually are. I hope this helps, and feel free to DM me for follow on discussion.