What percent are you using for maintenance, vacancy, PM, etc???

Developer · Aguada, PR · Member since 2014 · 928 posts · 279 votes

I am using the BP rental calc to evaluate properties for potential rental performance. What numbers is everyone using for their expenses?

I am using:

Vacancy- 6%-8% this gives me one months rent at 8% or just enough to usually cover PITI at 6%

CAPEX- 5% - If i were to have to replace a roof at 15 yrs, $8k roof/ 15 yrs = $533 yr /12months = $44 a month for CAPEX.

Repairs- 5% - for the unknown or unexpected repairs

Property Management- 12% - If I need PM to place and manage a property for me.

Thoughts?

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Brie SchmidtBusiness Member

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Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes

11y

I use:

8% vacancy

8% repair

5% capex

9% management

We have been in crazy growth mode but once summer hits we should be stabilized and done acquiring. I feel these numbers are conservative and we budget $65k a year for vacancy, repair, and capex.

My plan is to transfer a fixed amount of profit into our personal account each month. Then capex and any money not spent on vacancy and repair that month goes into a savings account (or if we overspent one month we will pull from the savings account to make up the difference in profit). At the end of the year what is left we will plan to spend on bigger proactive projects. So if a roof will need to be replaced in a year or two we will do it now. If we have an old furnace instead of waiting for it to die we will replace it now.

This way we will avoid big ticket surprises and not get comfortable living off extra profit.

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Account Closed
Investor · Singapore · Member since 2013 · 1k+ posts · 3k+ votes
11y
I don't think percentages are the best way to look at this as it strongly depends on the rent. I have properties ranging from $700 to $3000 in rent so obviously the same percentages don't apply.
But lets take the case of the lower end (700-850) midwest type properties.
I assume the following: 1 vacancy every 18 months. This is by experience that turnover is either 1 year or 2 years on most properties. I assume each turnover the property is vacant 1 month. I add 1 month rent on top of that for leasing fees to PM. I add $250 for turnover maintenance cost (over and above what can be charged to the deposit). So basically the vacancy cost is 2 months + $250 every 18 months. For other maintenance (non turn related) 5% seems to work and I hold $500/property/per year as capex reserves. Ongoing PM cost is about 10%.
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Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
11y
Originally posted by @Sharad M.:

@Joe Villeneuve
But you do factor in some amount for repairs, capex, vacancies?
Can you walk through an example of how you analyze and calculate cash flow for your property?
Of course I account for those "fun" expenses. I never said I didn't, and I mentioned that I do it proactively. Here is an example of a property I have control over right now. I'm using this one for no other reason than it's on my computer screen in front of me right now:
Profile: 3 bed/1.5 bath; 1066 sf; bsmt and garage; brick ranch; bank owned.
Cost to Buy = 68k; rehab = 10k; ARV = $125k; 70% ARV (refi) = $87,500; CashOut = $9,500
Rent: =$1350; T/I = $220/m; PM = $130/m; REFI: CF = $640/m; CF = $360/m ($4320/yr)
End Result Moving Forward:
Cash Flow = $4,320/year
Equity = $37,500 (30%)
Cash Out from REFI = $9,500 (this is my CAPEX, repairs, etc...)
Cash Back from REFI = $68,000 (this is used for the next deal)
...and, then I just repeat this over and over.
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Mark UpdegraffBusiness Member
Real Estate Broker · Rochester, NY · Member since 2010 · 1k+ posts · 706 votes
11y
35%
10% PM
10% Capital Reserve
10% Vacancy Reserve
5% Repair Reserve
That leaves NOI. From here you can subtract out other costs like:
Water, Refuse, Taxes, Insurance, Snow, Lawn, LEASE UP, book keeping, etc to determine your Cash Flow
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Sharad M.Pro Member
Carlsbad, CA · Member since 2010 · 1k+ posts · 1k+ votes
11y
@Joe Villeneuve Is $640 your monthly mortgage payment?
What is the address of the property?
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Andrew S.
Investor · Raleigh, NC · Member since 2013 · 1k+ posts · 708 votes
11y
Originally posted by @Andy Mink:

I agree with @Joe Villeneuve I self manage and self-repair my small portfolio so I do not figure for capex and vacancy. This allows me to maximize cashflow and try to save as much cash as I can in my "house account" which is just a slush fund for any and all related house/unit expenses. I figure if there are big problems that cost a lot I can use a credit card to cover it and then use the cash flow to pay it down as needed. If I can make it 12 months with 6 doors cashflowing $250 I should have $18,000 to handle whatever ethier of the two individual properties need, or try to re-up on another property and hold my breath while we are cash poor. "Make as much as you can, spend as little as you have too"
I suppose different people have different definitions of "cashflow". For me, cashflow is what is left over from the gross rental income after paying ALL expenses (mortgage, insurance, maintenance, PM,new roof, whatever). Of course, you can ignore some, or all of the expenses and call the result "Cashflow". In fact, I have seen people use the term "cashflow" for "gross rent minus P&I" many times. I don't find that definition useful for my purposes. If I have to use this month's "cashflow" to pay for next month's new roof, then that doesn't tell me what I need to know about how my property performs.
That said, it looks like it works fine for you, Andy, and @joe villeneuve - fair enough!
1 Reply
Sylvia B.
Rental Property Investor · Douglas County, MO · Member since 2014 · 1k+ posts · 1k+ votes
11y
@Joe Villeneuve
Your capex/repairs funds appear to be dependent on continually purchasing new properties. What is your plan for those funds once you stop buying?
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Sharad M.Pro Member
Carlsbad, CA · Member since 2010 · 1k+ posts · 1k+ votes
11y
@Joe Villeneuve
Another thing that I don't agree with in your calculation above is that you aren't factoring for any opportunity cost for the $9,500 you are using for CAPEX. You can reasonably earn 10% on your money and not being able to generate that extra income should be factored in your CF analysis. So an annual basis you are losing $950 by not being able to use that money for other investments.
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Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
11y
Originally posted by @Sharad M.:

@Joe Villeneuve Is $640 your monthly mortgage payment?
What is the address of the property?
Sorry, but I'm not blasting the address of the property I'm in the middle of closing out negotiations with on the internet. You seriously are asking for that?
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Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
11y
Originally posted by @Sylvia B.:

@Joe Villeneuve
Your capex/repairs funds appear to be dependent on continually purchasing new properties. What is your plan for those funds once you stop buying?
You realize that I'm building this fund on every property I buy. Add up the numbers. I'm covered for a long time...much longer that at 16% per month.
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Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
11y
Originally posted by @Sharad M.:

@Joe Villeneuve
Another thing that I don't agree with in your calculation above is that you aren't factoring for any opportunity cost for the $9,500 you are using for CAPEX. You can reasonably earn 10% on your money and not being able to generate that extra income should be factored in your CF analysis. So an annual basis you are losing $950 by not being able to use that money for other investments.
What is the opportunity lost on the 16% you are taking out per month? More importantly, what is your priority? Also, where do you think I keep these funds...under my mattress? They are also invested...just easily accessible when needed.
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Sharad M.Pro Member
Carlsbad, CA · Member since 2010 · 1k+ posts · 1k+ votes
11y
Originally posted by @Joe Villeneuve:

Originally posted by @Sharad M.:
@Joe Villeneuve Is $640 your monthly mortgage payment?
What is the address of the property?
Sorry, but I'm not blasting the address of the property I'm in the middle of closing out negotiations with on the internet. You seriously are asking for that?
Again, is $640 your monthly mortgage payment?
I assumed you had closed on the property you mentioned. Yes, I was serious about it. I didn't write lol or drew a smily face.
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Sharad M.Pro Member
Carlsbad, CA · Member since 2010 · 1k+ posts · 1k+ votes
11y
Originally posted by @Joe Villeneuve:

Originally posted by @Sharad M.:
@Joe Villeneuve
Another thing that I don't agree with in your calculation above is that you aren't factoring for any opportunity cost for the $9,500 you are using for CAPEX. You can reasonably earn 10% on your money and not being able to generate that extra income should be factored in your CF analysis. So an annual basis you are losing $950 by not being able to use that money for other investments.
What is the opportunity lost on the 16% you are taking out per month? More importantly, what is your priority? Also, where do you think I keep these funds...under my mattress? They are also invested...just easily accessible when needed.
Joe, you are not calculating your CF correctly when you aren't factoring in all the other costs that comes with owning a property other than PITI and PM.
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Sylvia B.
Rental Property Investor · Douglas County, MO · Member since 2014 · 1k+ posts · 1k+ votes
11y
Originally posted by @Joe Villeneuve:

Originally posted by @Sylvia B.:
@Joe Villeneuve
Your capex/repairs funds appear to be dependent on continually purchasing new properties. What is your plan for those funds once you stop buying?
You realize that I'm building this fund on every property I buy. Add up the numbers. I'm covered for a long time...much longer that at 16% per month.
Gotcha.
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Chris Martin
Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
11y
IMO, if you are doing your homework your CAP EX number should be pretty close to exact. (The numbers in my post are examples only.) Yes, you can't determine when the HW Tank blows, but if it is 10 years old, it is end of life. What does it cost to replace it? $1,000? $700? $600? $300 if you do it yourself? To some degree, you can control costs. If you wait until it blows chow... and causes $3000 in damage... that consequence is a little different than the $700 the plumber quoted and your $300 in material cost if you replaced it yourself last fall.

There is something to be said for "scheduled maintenance". The terms are in your control. That lower cost $600 plumber may have needed to install at a "low period" convenient to him. But compared to the $1,000 (or $3,000 with water extraction damage) emergency repair, that's a good deal.

Operate on actual dollar costs first. Percentages... ? The 38 gallon water heater in the 1100/month place is product-wise the same as the 750/month place. Does your plumber say 'what is your rent, so I can charge you correctly?' I think Not.
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Aaron T.Pro Member
OP
Developer · Aguada, PR · Member since 2014 · 928 posts · 279 votes
11y
Originally posted by @Sharad M.:

@Joe Villeneuve
Another thing that I don't agree with in your calculation above is that you aren't factoring for any opportunity cost for the $9,500 you are using for CAPEX. You can reasonably earn 10% on your money and not being able to generate that extra income should be factored in your CF analysis. So an annual basis you are losing $950 by not being able to use that money for other investments.
@sharad where are you investing your capital that is sitting waiting for other properties?
0 Reply
Sharad M.Pro Member
Carlsbad, CA · Member since 2010 · 1k+ posts · 1k+ votes
11y
@Aaron T. I purchase my properties all cash, so as soon I have funds accumulated for next property, I go out and buy a property.
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Aaron T.Pro Member
OP
Developer · Aguada, PR · Member since 2014 · 928 posts · 279 votes
11y
Originally posted by @Sharad M.:

@Aaron T. I purchase my properties all cash, so as soon I have funds accumulated for next property, I go out and buy a property.
Ok. One day I will be able to buy all cash. Until then I will have to leverage.
Cheers
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Ndy Onyido
Toronto, Ontario · Member since 2014 · 615 posts · 172 votes
11y
@Sharad M.
I would not expect that someone would want me to disclose the address on the net, especially when the transaction is still open. Besides, we either believe what we say or we don't. whatever you say you do with your investments, I believe that you have no incentive to state otherwise, so believe what he said......
@Joe Villeneuve is comfortable with what works for him and he has been doing this for years; your understanding of cash-flow my differ from his, but he's doing great with his definition of cash-flow.....period. Opportunity cost of the $9500 was on the assumption that it is not re-invested; of course that assumption is flawed.
I still maintain that whatever you do and it works for you, do it, but don't compel others to tow your line..
@Andrew S. did mention that different people have different definitions for cash-flow. For me, whatever the universally accepted definition is, am indifferent so long as I find 'my' definition that works for me; am good with it.
@Account Closed made a sterling comment: if you use percentages and call it standard, does a new roof on a 3000/month property necessarily cost thrice as much for a roof in same location but on a 1000/month property?. I don't think so.
So, the bottom line, use whatever is expedient and don't be restricted by all these rules-1%, 2%, 50% etc....It takes the creativity off REI....
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Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
11y
Originally posted by @Sharad M.:

@Aaron T. I purchase my properties all cash, so as soon I have funds accumulated for next property, I go out and buy a property.
Good for you. How long does it take before you can accumulate the funds for your next deal? Here's a more important question. It involves basic addition and subtraction. Ready?
If, you buy all cash, let's say $100k, and you get your cash back by way of cash flow at $1000/month ($12,000/year), when do you break even?...and do you consider yourself behind until you do break even?
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Sharad M.Pro Member
Carlsbad, CA · Member since 2010 · 1k+ posts · 1k+ votes
11y
@Ndy Onyido numbers is because he posts very over the top numbers and hasn't provided any support for his numbers. CF is not and never has been Rent minus PITIPM.
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Ndy Onyido
Toronto, Ontario · Member since 2014 · 615 posts · 172 votes
11y
@Aaron T.
If your plan is to have all cash and buy all cash, good luck. For me, if you take leverage out of REI, you might as well start selling tomatoes and vegetables!. Even Warren Buffet never pays more than 15% down for his investments.
Why would anyone want to buy ALL cash? Even if I have all the money in the world, I will give it to charity and refinance my properties. I do not see the sense of buying property for investment all cash..
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Sharad M.Pro Member
Carlsbad, CA · Member since 2010 · 1k+ posts · 1k+ votes
11y
Originally posted by @Ndy Onyido:

@Aaron T.
If your plan is to have all cash and buy all cash, good luck. For me, if you take leverage out of REI, you might as well start selling tomatoes and vegetables!. Even Warren Buffet never pays more than 15% down for his investments.
Why would anyone want to buy ALL cash? Even if I have all the money in the world, I will give it to charity and refinance my properties. I do not see the sense of buying property for investment all cash..
Ndy, I buy my properties all cash and I think I do a little better than selling tomatoes and vegetables.
I will tell you my reasons for buying properties all cash. PEACE OF MIND.
I am 32 years old and I have bought enough properties free and clear that I can retire right now, not do anything more and will have a very comfortable and stress free life.
You don't have to leverage your properties to be able to give money to charity. I own my properties all cash and still find money to give to charity.
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Dawn AnastasiPro Member
Rental Property Investor · Milwaukee, WI · Member since 2013 · 6k+ posts · 4k+ votes
11y
After renovation, I factor in 15% for repairs/CapEx. 8.3% for vacancy (1/12 per year). I self-manage so I do not include the PM. However, I get really good cash flow so even if it were to be taken out it would not be a deal-breaker.
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Ndy Onyido
Toronto, Ontario · Member since 2014 · 615 posts · 172 votes
11y
@Sharad M.
All I say is Good luck!
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Sharad M.Pro Member
Carlsbad, CA · Member since 2010 · 1k+ posts · 1k+ votes
11y
@Ndy Onyido
Thank you!
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