What percent are you using for maintenance, vacancy, PM, etc???
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Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
11yI 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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130 Replies
- Steamboat Springs, CO · Member since 2012 · 2 posts · 0 votes7y
Sorry I can't find it here, but what is the 50% rule?
- Member since 2018 · 25 posts · 20 votes7y
The 50% rule is a general rule to help quickly analyze the financials on a property, although it seems to be pretty reliable on average much of the time. The idea is that over a long hold period, your expenses on an investment property if you track them very well will tend to gravitate to about 50% of the income it produces. A lot of things affect this in the shorter term, for instance if it is a well-built newer property, or has just been through a solid renovation, expenses should be lower for a period of time...maybe 30-35% of income. Conversely if the property is older and has some deferred maintenance, expenses may be much higher for a period of time....maybe 65-70% of income. As you hold a property for a longer term the expenses will tend to average out to ABOUT the 50% mark.
That 50% number includes things like maintenance/repairs, advertising, property management, water/sewer, utilities, vacancy, and yes, taxes and insurance. It does not include debt service (principle and interest payments). The idea is, if you bought the property for cash, you would still have to pay taxes and insurance, so that gets figured in with expenses and is lumped in to that 50%.
- Investor · Columbus, OH · Member since 2015 · 625 posts · 601 votes7y@Ryan York 8% a month. The idea is that you will have one month a year vacant due to turning the unit over and finding a new Tennant. Saving 8% a month gets you the money to cover that. Like someone said way up in this thread, that 8% covers you still getting your cash flow for the month. If you just needed to cover the mortgage and insurance you'd just need to save whatever percent that breaks down to monthly like 5% or whatever.
- Rental Property Investor · Winslow, ME · Member since 2008 · 826 posts · 281 votes7y
UPDATE:
When you factor "vacancy rate" should that include leasing and any court related expenses if any? For example, assuming NO actual evictions, if each unit is vacant one month per year (7% vacancy rate) and you pay one month's rent for leasing, that would equate to a 14% vacancy rate. So with a duplex or house, if you're subbing out mgmt. I'd say that 14% is the MINIMUM one should budget for vacancy. Once you get upward of 1a well-run 2-15 units, actual vacancy of 3-5% becomes more probable.
This year, repairs + capex will be about 28%. I've always seen 5-8% for total repairs and maintenance & a 5% set aside for future capex. has anyone here actually "hit" those numbers over any 5 year period with older buildings here in the Northeast? I don't do ANY work myself, but have a part time contractor do all our maintenance. JUST our heating system maintenance is 5-8% in a GOOD year, never mind painting, flooring, electrical, lawn and snow, etc. In fact our snow removal is about 10% of gross in come during the winter. Our lawn care is 5% during the warmer months.
I've reconciled to now budgeting 20% of gross income for combined repairs, maintenance and capex. That will actually be CHALLENGING to hit. Our vacancy though has never been above 2% since 2010, and of course we self manage and lease.
- Specialist · Honolulu, HI · Member since 2014 · 1k+ posts · 1k+ votes7y
Originally posted by @Kenneth LaVoie:
UPDATE:
When you factor "vacancy rate" should that include leasing and any court related expenses if any? For example, assuming NO actual evictions, if each unit is vacant one month per year (7% vacancy rate) and you pay one month's rent for leasing, that would equate to a 14% vacancy rate. So with a duplex or house, if you're subbing out mgmt. I'd say that 14% is the MINIMUM one should budget for vacancy. Once you get upward of 1a well-run 2-15 units, actual vacancy of 3-5% becomes more probable.
This year, repairs + capex will be about 28%. I've always seen 5-8% for total repairs and maintenance & a 5% set aside for future capex. has anyone here actually "hit" those numbers over any 5 year period with older buildings here in the Northeast? I don't do ANY work myself, but have a part time contractor do all our maintenance. JUST our heating system maintenance is 5-8% in a GOOD year, never mind painting, flooring, electrical, lawn and snow, etc. In fact our snow removal is about 10% of gross in come during the winter. Our lawn care is 5% during the warmer months.
I've reconciled to now budgeting 20% of gross income for combined repairs, maintenance and capex. That will actually be CHALLENGING to hit. Our vacancy though has never been above 2% since 2010, and of course we self manage and lease.
For SFHs in Maine, esp. if older built, 20% sounds very reasonable.
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