I am looking at investing in a 10 unit property in Worcester County, MA. I am underwriting the property and having trouble estimating the expected maintenance. Obviously with an older property there tends to be more R&M than a newer property. The property is a brick building and the roof and boilers have been updated in the last 3 years. The property is occupied by low income families that have rented at the property for a few years. The property averages about 2 units turnover a year, minimizing the amount of turnover repairs needed. I am trying to estimate the R&M expense and currently have $7,500 annual expense plugged in ($750/unit). Is this too aggressive? Does anyone have experience with older properties that can opine? Thanks
That is old- did you also include adequate capex up front? With an additional allowance for reserves and annual cap-ex that may be adequate? I typically use 10% for cap-ex/ reserves. I will wait to hear from the more experienced pros as well.
IMO it depends as much or more on the number of people as the age of the property, and if the current owner is a mainainer or an avoider. Yeah, older is more RM and 3 beds would create more calls than 1. Lower income does tend to mean more people; although 750 per door seems like a lot. How about asking for financials see what has been the rate for the last few years. Be sure and get a proper inspection on that building done by a licensed inspector and accompany him/her through the inspection every step of the way. I do not have a building that old; my oldest is 1960.
Is it a flat roof or a pitched roof, even a flat roof re-done can have issues if not done right. Have a mason inspect the brick exterior, failing lintels or joints that need pointed could be bigger ticket items plus can allow water pentration if you are not aware of them. Whenever I by more than 2 units under one roof it takes about 2 years for all issues to present themselves. Make sure you know all capex items from inspection or walking property with a good contractor and you will have the monthly rent income to offset maintenance suprises. When you saw all the units did you ask tenants if they have any maintenace issues that need addressed? That's the easiest way to quickly see what repairs are needed.
The roof is flat. I definitely will have an inspection done and contractor walk the property to check everything out. The tenants did not acknowledge any issues they are having and my take away is current owner is hands-on based on the condition of the property. Having a mason inspect the exterior is good advice and something I had not thought of. Thanks for the help @Eddie Werner !
@Greg Horowitz i would allow for 10-15% for maintenance.
and also allow for Capex at minimum $300 per unit per year.
You need to work out the operating expenses (OPEX) per unit in your market.
These expenses are including, utilities if you pay for them, maintenance, yard care, pest control, insurance, advertising, property manager etc etc.
these often come up to well over $3000 per door - depending on the market..
$750. sounds to low for all expenses.
@Hadar Orkibi I am more asking about the R&M specific expense line. I am accounting for utilities, insurance, advertising on top of my $750/unit. I am more asking to see if people have experience with older properties and the maintenance issues they have required. I agree that $750/unit is way too low on total opex. To better assess the expense items in a market is there a specific reference or website you use? Having not invested in this market yet it is difficult to know the true expenses per unit. I have looked at sales comps in the market, but any other ideas would be helpful.
@Greg Horowitz naturally if the property is older and not rehabbed you will have higher maintenance. Check the water heater and HVAC in the Due Diligence.
Also the water pressure and the regulators. These with labor, if in the ground can cost hundreds to change each.
Re typical expenses per unit in the market. Talk to local lenders, brokers and property manager.
From an insurance perspective there are some things I would recommend checking:
1. Underground tanks (in use or not)
2. Lead Paint
3. Knob & Tube or Aluminum Wiring (even if you can't see it in basement or
attic have your electrician check to see if it's still in the walls)
4. Fuses or under 100 amp service
5. Pools that are not fenced or that have diving boards or slides
7. EFIS siding or Asbestos shingles or siding
8. Polybutylene Plumbing
9. Presence of Asbestos (pipe wraps, tiles, etc.), Radon, or other environmental issues
10. Tenants with problem pets such as Pit Bulls, Rottweiler's, etc.
I would ask the current owner to get you a 5 year claim history of the building. You can use the flat roof as an excuse but really you are looking at were there any claims and did the correct the cause.