Typical % figured in for Vacancy, CapEx, etc..?

Question

Hi Folks,

Is there a standard percentage that you all figure in for vacancy, capital expenditures, maintenance and repairs or does it vary by area/property? I been figuring in 3% vac, 3% repairs, and 8% capex...am I far off? I am primarily looking for investment properties in the Lebanon, PA area, but realize factoring in these percentages can effect the cash flow numbers pretty quick. Also, if there are any investors in the Lebanon, PA area I'd love to connect, I'm looking for a mentor in the area!

Deanna McCormick · Answer

Banks for lending purposes figure in 5% cost for loss of income yearly on rental properties. at least that's what mine had as average factored in on loan application.. didn't matter that I had had 100% occupancy with no income loss for 3 years on that property the bank still factored it in .

Joe Villeneuve · Answer

It depends on the specifics of the property....and I never base it on a %.  Why would you?  Base it on what you are trying to cover and how you have to cover it.  Example:

Vacancy.  What do you have to cover if the property is vacant?  How long do you have to cover it typically, as in how long does it take to fill a vacancy?  Don't take out a little each month to cover it, because it won't work.  You either won't have enough, or you're initial analysis will ruin a great deal because you will be taking money out of it to cover something it simply won't cover.

Just hold back a total amount based on the above statement of what you have to cover, then stop saving for it.