Single Family Maintence/Repair/CAPEX estimations
San Diego, CA · Member since 2016 · 44 posts · 31 votes
Hi All,
I'm looking at a few sfr properties in the midwest with cash flow potential and I'm having some trouble with the maintenance/repair/CAPEX numbers. Currently, I am budgeting the following:
Maintenance/Repair: 7% Gross Rent - 5%-7% seems to be standard for SFR properties?
CAPEX: 180/month (2160/yr) - because its slightly higher than the BP book recommendation
It may be important to note that these investments would be turnkey
Do these numbers make sense or are they too liberal? too conservative? I would really like your insight. Thank you!
EDIT: damn it I posted in the wrong forum ._.
@Eugene Lee It's really not possible to give you good percent or capex numbers like would commonly be done for multi-family because it varies so much depending on the SFR you're talking about.
On turnkey, if you have a reputable provider you should have no or low repairs or capex for the first couple years. After all they have just repaired and upgraded everything right? I was a bit skeptical of this when I bought a turnkey as a test but it has actually mostly turned out that way. I've owned it about 2 years and had very low repairs/capex the whole time.
But you could get a bad tenant even with a great Property manager and they could trash the house causing $5k in damage. Or you could get a horrible PM that charges you $500/month in repairs just because.
My point is, you can estimate whatever you want, your numbers look fine. But there are more important things like A) vetting your turnkey provider B) vetting your Property manager C) Making sure the property is good with a great inspector D) Picking a good market where if you experience a nightmare tenant it won't matter because the property will appreciate in value and E) Making sure you have adequate reserves to absorb the 'learning experiences' that will inevitably occur.
Also, a lot will depend on the demand for rentals in the market you choose and the type of property. Because, if you buy an SFR in a good school district in a very tight rental market like Denver, Dallas, Atlanta you may not get a maintenance call or a tenant turn for 5 years. Most of your repair and capex will come when you do a tenant turn.
In addition to market, there's a difference between higher-end and lower-end. Are you buying a Turn-key that is brand new in San Antonio for $150k or a rehabbed 80 year old house in Cleveland?
Once you've bought 10 SFR you can kind of rely on percentages like that. Before that it comes down to hard work, good partners and luck in that order.
@Eugene Lee It's really not possible to give you good percent or capex numbers like would commonly be done for multi-family because it varies so much depending on the SFR you're talking about.
On turnkey, if you have a reputable provider you should have no or low repairs or capex for the first couple years. After all they have just repaired and upgraded everything right? I was a bit skeptical of this when I bought a turnkey as a test but it has actually mostly turned out that way. I've owned it about 2 years and had very low repairs/capex the whole time.
But you could get a bad tenant even with a great Property manager and they could trash the house causing $5k in damage. Or you could get a horrible PM that charges you $500/month in repairs just because.
My point is, you can estimate whatever you want, your numbers look fine. But there are more important things like A) vetting your turnkey provider B) vetting your Property manager C) Making sure the property is good with a great inspector D) Picking a good market where if you experience a nightmare tenant it won't matter because the property will appreciate in value and E) Making sure you have adequate reserves to absorb the 'learning experiences' that will inevitably occur.
Also, a lot will depend on the demand for rentals in the market you choose and the type of property. Because, if you buy an SFR in a good school district in a very tight rental market like Denver, Dallas, Atlanta you may not get a maintenance call or a tenant turn for 5 years. Most of your repair and capex will come when you do a tenant turn.
In addition to market, there's a difference between higher-end and lower-end. Are you buying a Turn-key that is brand new in San Antonio for $150k or a rehabbed 80 year old house in Cleveland?
Once you've bought 10 SFR you can kind of rely on percentages like that. Before that it comes down to hard work, good partners and luck in that order.
@Eugene Lee A percentage is going to be very difficult. Even a rule of thumb is hard to say because it can be so variable. For example, if your Furnace needs a $300 part to repair it that part costs $300 whether your rent is $600 a month or $3000 a month. even though its the exact same repair its the percentage swings from 50% to 10% of your monthly income. Other factors like age of the building will play a huge role. Mechanics type/quality. I have looked at thousands of houses and everyone is a case by case analysis.
I don't have any rentals myself, but I look at it this way: Better safe than sorry. It wouldn't be a bad idea to set aside all of your cash flow at least for the first few months to build up a cushion because when you need a new HVAC, its not going to cost x/month, its going to cost x all at once. The idea of saving monthly only makes sense if you manage to save up enough before you have to spend it. Better to get that cushion now and readjust later, especially since you only have one. I think the repairs budget percentage makes more sense with multiple units to spread your risk across and lots of repair data to create an accurate percentage to set aside.