Rental expenses

[Tristan Cortez]

Well here I am with another rental expenses question.

I am analyzing as many deals as I can to get experience on how the numbers work and how to spot a good deal. Below are the expenses I am accounting for.

I would greatly appreciate it if you could look it over and tell me if I'm over estimating, under estimating or leaving something out.

Capex $257

Maintenance 10%

Vacancy 5%

Property management 10% (I will be self managing my property's but I want to factor in PM so the property will still cash flow when and if I hand it over to the PM

And of course mortgage, property taxes and insurance vary by property.

Thanks

[Roy N.]

@Tristan Cortez

Operating expenses should comprise any expenses incurred in the operation of the business.  This includes your insurance, maintenance, advertising, utilities, taxes, etc.  

Operating expenses do not include Capital Improvements; your CAPEx reserve is set aside from your Net Operating Income.  

Vacancy itself not an expense per se, but unrealised revenue.  You would typically deduct your vacancy allowance  from your schedule rent to arrive at your effective gross income. 

Technically Operating Expenses include the carrying costs (interest expenses) of the current portion of your long term debt (mortgage), though I rarely see real estate investors incorporate it as such.

The key thing in the beginning is you allow for all of these items when analysing a prospect.  Once your business is humming along, your accountant will help you keep things in the correct spots.