Calculate certain Rental expenses

[Devang S.]

Fellow BP colleagues,

So I've question on analyzing properties. I understand the answer may be it all depends, and that's okay, but wanted to understand the reasoning behind some of the unknown expenses, how you go about it. 

Specifically my question is related to the expenses related to repair, supplies, capex and vacancy. How do you go about them when analyzing the deals? Do you assume certain % of rent or some absolute numbers for initial pass? 

Of course, it depends on the property condition, market cycle, neighborhood, location etc. but assume there is some conservative guidelines that you may be using for the preliminary go/no-go analysis. Sure, some people would say this is backward, meaning you have to zero in on the area and understand as much about it as you can first, before even looking around to buy anything, but believe at some point they also need to come up with some rough numbers for these unknown expenses. Interested in your thoughts!

[Cody L.]

I'd be broke if that 50% rule was a rule.  

I just ran a report for one of my properties.  Last 6 months (3/1 to 8/31).

$780k income

$320k expenses (this has the full years insurance on it so it's actually less, and some capital costs that were one time as we just bought the property a year ago so the last 6 months still represents some of our earlier months with the property

This one was ~41%.  I bet next 6 months will be more like low 30's since I'm seeing a ton of unit upgrades that the previous guy just didn't do.

I go in assuming a conservative 40% if not all bills paid, or 50% if all bills paid.  But like most said, that's super rule of thumb numbers. 

So the NOI last 6 months was $460k. Loan is $30k/month ($180k during that time). Over $46k/month from this property. This is why you buy apartments kids.