Hello- I am trying to build a proforma for a specific property but am seeing a HUGE variation in what I should be using as expectation for Maintence and Repair costs, Utilities, and reserves.
Also- CAPEX reserves.
How do you accurately judge this? I have seen the biggerpockets calculators, and seen what some syndicators use and these numbers are all over the place.
Two numbers I use. Quick easy way If I have the PITI, then PITI+$300 would equal my break even rent number. The other way is for BRRRR, .876% of the loan amount. If my loan amount is 200,000 x .00876 = $1752.00 would be my break even monthly rent, anything over that number would be cash flow. I got .876% from breaking down all the maintenance, repairs, capex, loan costs, and other costs from my rentals. I use this number when looking at a property to BRRRR. Forget the 1% rule, its garbage (1% of the purchase price is your monthly rent). Purchase price is only a small piece of the BRRRR, you need your final loan amount after buying it will hard money, rehab, refinancing costs plus all the costs to rehab it plus adding in the future costs of maintenance and capex. Once you get that loan amount x it by .00876, that's the monthly rent you need to charge to break even.
It’s 100% location and property dependent. You have to ask a local landlord or PM that owns/operates the same type and age properties.
In Las Vegas my experience with 15 properties over 20 years is…
Vacancy a little less than 1%
Capex basically $0, maybe 0.5%
Repairs (90% water heaters and appliances) 2% (maybe 3% now as ac units start to age.)
Insruance 3%
Property tax 12%
PM 8%
Pretty easy to flush 26% of your rent to expenses. (Sorry to see 1/2 of it is property tax in a low tax state.)
Now. If you have an 80 year old farm home in the great white north with wood siding and shingle roof it could be double that.
Asks a Local expert, someone actually doing it with the type and age of property you have/want. You should add your location to your profile and people will chime in to help liek you won’t believe.
@DongHui Patel, what type of property are we talking about? If you are talking about a 4 family, then what syndicators are budgeting is irrelevant (assuming the ones you are looking at are buying 100+ units).
From there, again hard to tell. Maintenance and Capex are very closely tied. I.e. a 15 yr old AC unit will have more repair costs, but if I replace it with Capex spend, now I will have no repairs for a long time.
Other factors: how many appliances are you providing? if you have a disposal, dishwasher, fridge, range, microwave, washer and dryer all provided, you will likely have more repair bills than only providing range and fridge.
Capex will depend on both current condition and anticipated hold. If you own an asset 20+ years, you will likely have to replace the kitchen and bath, roof, repaint exterior a time or two, etc. If you plan on holding 5 and everything is fairly new, you likely won't have any Capex, or very little.
Then scale: a large property with onsite repair/maintenance teams will have lower turn over and repairs and maintenance, since you have a full time team, and their labor is in payroll line item. A fourplex will cost more for the same services since you are calling contractors each time and won't get any volume discounts versus owning 50 units in the same market.
You don't have to estimate. The IREM report tracks every line item, for every asset class, every vintage, every mechanical set-up, in every location in the US. Get a subscription and use those averages.
Now, those are averages. They take vintage into consideration, but not necessary condition or CapEx. For instance, if you are going to buy and hold and 1970es asset without doing major renovations your CapEx reserve requirements will look very different from a 1998 property that you are spending $25,000 per unit to modernize. The same can be said for your R&M and turn costs. So, once you start with the averages, you amend the numbers to reflect your business plan.