Calculating Rental Expense: What % for Repairs and Cap Ex

3 Replies

When calculating numbers for rental income, what is a fair estimate for repairs/ maintenance? And what is a fair estimate for Cap Ex? Is there a commonly excepted percentage for single family vs multi family? 

@Ryan Y. : It depends... poor answer, right?

Maintenance should be about 50% of your rent. The number may fluctuate if you are in a more expense city. CapEx depends on the condition of the major components of the property. For example, if the roof is aged, then you are going to want to bump the number up to whatever correlates to the remaining life of the roof.

@Ryan Y.

Here's how I've been looking at CapEx calculations. Of course, it depends on the age and condition of the property, but these basic guidelines might be helpful:

  • Initial CapEx Funding at property closing: At closing, as part of my 'cash needed to close' calculation, I take 3% of the sales price and set it aside in a separate CapEx savings account. This is a pooled account for all of the properties in each LLC. I may adjust up or down depending on the initial repairs that it will take to get the property online and in production. Generally speaking however, for a property that is ready to go, I will contribute 3%. You'll notice the BP calculator allows you to include custom categories for closing costs and I just include the amount in one of these fields.
  • Monthly contributions: Right now, I'm contributing 10% of rent each month to the same CapEx account (again, a separate account for each LLC and not for each property). I've found that might be a little too much, but I'm not inclined to change it right now. 6% might be pretty much on target, but it does depend on the location (some areas simply have harsher conditions and also might be more expensive for repairs) and the age and condition of the property. Whatever number you choose, including it in your cash flow calculations is essential.