What is your return expectation on rental repairs?

Question

Outside of your initial rehab if the property needs work , how much do you budget on a monthly basis for rehab?

Also , I'm curious as to what most investors are looking at for gross yearly income based on purchase price.

Michael Lauther · Answer

I am buying for all cash in My SDIRA in a low income area so I do not add appreciation into my analysis when I buy. However there is opportunity for quite a bit of appreciation  if the economy recovers in the inner city.

We already see neighborhoods reviving locally in Dayton but not enough to count on any great increases in the short run
 (2-5 years).

Rent however is accounting for near 20% return and better on properties with better than average rehab.

Eventually the maintenance will catch up when the big ticket items start to wear out in 10 years but by then I should have made back my initial investment 2x over.

If the community continues to improve I could see prices double in 10 years over those in 2012.

Ken Latchers · Answer

I don't think you can just pick numbers out of thin air.  There are some serious variables.  For example, someone rehabs a 1901 building compared to a 1975 building.  Or what exactly is the definition of rehab?  Someone might rip out all walls, cabinets, bathroom fixtures, roof etc.  Someone else might just refinish the cabinets, get fixtures in working order, only replace the roof if critical, carpet and paint.  Someone will do an upscale with granite counters and the other person will go low budget targeting the middle of the rental market.

Steve Babiak · Answer

Do the rehab right in the first place, and your monthly budget becomes minimal.  You then should set up for reserves in two forms.  One is for replacement of aging items (roof, furnace, stove, etc all have a certain limited projected life expectancy); for these, divide the cost to replace by the remaining useful life in months to get a monthly reserve amount to set aside.  The other reserve is for being able to handle some ongoing operations during a vacancy; you'll have to guess at some vacancy period, and add all the typical monthly expenses for the property to get to the total amount you'll want to accumulate for this.  Then you have to decide how soon to achieve that total so that you can divide by some number of months.

Some people forego all of that computation and just set aside some percentage for reserves.

And I consider rehab distinct from maintenance ...

Ryan M. · Answer

2 - 4 units, 2% of pp monthly

Bill Gulley · Answer

Quick numbers, 10% for maintenance, returns of at least 12, 14% with 3% appreciation, and it's getting harder to find in my area. Oh, and add at least 3% for your management if you want to work for the expected apprication, otherwise 6%. All this has many factors as well and what you goals might be. Good luck....