It's been a long drawn out process with getting financed via a bank. I own 8 properties and we've been looking to leverage them for a few months now, and are finally in the ending phases of getting a LOC to take out equity for some of them.
Anyways, part of the bank's process was doing a spreadsheet on all the properties and calculating insurance, taxes, repairs and vacancies.
I have my own spreadsheet with our properties, however I was kind of surprised that their requirement was 25% of gross rents towards repairs. Since the start, my plan was $75/door regardless of the property, even then I estimated that this was a little bit high simply due to the fact that 6/8 of our properties were rehabs. During the rehab process we decided to fix everything possible in order to minimize future repairs.
So, my question revolves around what you are seeing as median repairs for your properties, and whether or not they were properties you rehabbed after purchase (Prior to tenanting).
The 25% they lop off, I was told, was for repairs, vacancy, etc. Not just repairs.
Yea. I'd second Kimberly's response there.
The bank is not suggesting that 25% of your rent is going for repairs.
They're taking 25% off your rent for all your typical expenses (vacancy, repairs, advertising, etc). If you can show them other numbers from previous tax years, they will typically take the actual numbers instead. But 25% is a pretty standard calculation for most banks and its pretty reasonable too.
Typically, you should be coming out ahead on your houses with that calculation.
i.e. If your rent is 1,200, then, they'll lop off 300 and that leaves you with $900 to go towards PITI. I would assume that if you have a house thats renting for 1,200 a month, you should have a gross profit of 300 a month or more.
That means your rental income should be helping your DTI calculation.
If I had to guess for actual repairs, I'd say $75 a door is reasonable. But that also might depend on the size and age of your homes. And also on what level of rehab you tend to do when you first buy... The larger the home, the more the repairs costs. The older the home, the more the repair costs. And the more things you tend to replace when you do a rehab, the less the your repairs should cost.
I'm not upset about it , but I'm trying to figure out what to budget exactly.
Total repairs so far over the past year have totaled around $2500 across all 12 units (These were unforseen repairs). We are saving back right around $900/mo across all the properties. The only capital expense I can think of on the entire property group is upgrading/replacing the roofs on 7 of 8 units over the course of the next 10 years (Our plan is to put high quality, metal roofs on everything to save for expenses). My estimate on that expense is around $28,000 (Or a total of $223/mo that I need to escrow for that). Which puts us still ahead a little under $700/mo in repair escrows to deal with the 'other stuff'.
Overall their DTI calculation wasn't bad : Gross rents - Actual taxes - insurance - 25% of gross as repairs - 5% vacancy = Total amount that can be used as debt service.
So it isn't a terrible deal, if I want to mortgage to the limit, but what worries me is that our true net income will be lower than I'm estimating.
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