How do you calculate expenses?

9 Replies

Hey everyone one BP!

So I am interesting in buy and hold real estate investing. In my area, Corpus Christi, TX, I am running into the issue of not coming up with enough cash flow for the units(SFR, Duplexes, Triplex). So I am wondering if I am setting aside too much for my expenses or maybe not enough? I am also wondering, how do you calculate expenses like CapEx, Vacancy, Repairs, and Property Management(I guess property management would be just seeing how much it would cost with the management company you want to go with)?

Currently I just use the same numbers each time:

Repairs: 5% of rent

Vacancy: 5% of rent

CapEx: 10% of rent

Property Management: 10% of rent

Thank you very much for any information!

Daniel U.

Those numbers are reasonable. Main thing being is you need to decide what you’re comfortable with having put aside. Naturally you shouldn’t be comfortable saying nothing. 

Next step is determine what kind of cash flow you want. $100/door, $200, $300? 

If you’re plugging in the numbers you’re comfortable with and not getting the cash flow you want then keep looking. Finding a deal isn’t easy and doesn’t happen quick. Just keep digging, talk to local realtors, wholesalers and basically EVERYONE you know. Tell them what you’re looking for. 

Sooner or later you’ll find something that fits but it’s likly going to take some time and patience. 

Good luck. 

I like to use hard numbers as the rent and expenses are not necessarily correlated. But your numbers look reasonable. That being said, unless it's a very good area, a 7.5% or 10% vacancy rate is probably more realistic.

Here's what I set aside per unit:

Taxes:  ~ $100 per month

Turnover expense:  3.5% GSR

Water/Sewer/Trash: $30-$45 per month

Maintenance: 12%

Cap Ex: 2.5%

Overhead: 1%

Insurance: ~$25/mo.

Debt service (100% leveraged): $350-$400

EVERYTHING ABOVE is increased by 10% to account for vacancy

All told, each unit still cash flows between $100 and $200 per month.

These are B-/C+ small MF properties.

Note I do not pay for management as I self-manage, but that is offset by the increased debt service created by the 100% leverage.  I figure I am paying myself via equity by paying down the loan for the down payment, and when that is paid, I can turn it over to a PM if desired for no change in cashflow, or keep self-managing for a much greater return. (time horizon to payoff about 3 years average)

What does 10% cap ex encompass? If you break it down we can see if you over estimated it. Rest looks fine,

Key is roof, water heater, appliance, plumbing etc. WHo is paying utilities etc?

Sam Shueh

@Derek Tellier Thank you for that, I just gotta keep plugging away then give it time. 

@Andrew Syrios  I will definitely look into my area about that vacancy rate, thank you!

@Wesley W.  Thank you very much for the response. Those are good numbers, I'll definitely think about that paying myself via equity. I like that concept.

@Sam Shueh the CapEx covers those items you mentioned, its pretty much any of the big ticket items that don't go out too often (hopefully). As for utilities they will be paying for it.

@Daniel Urban Vacancy I look up. The FED and other agencies have lots of data for this. Maintenance I ask people who own or manage hundreds of units what they spend on average per year. Capex, take the cost of each item divided by years left and then into monthly payment. The method you just outlined is a poor way to do this. Percentage of rent likely isn’t accurate
Originally posted by @Daniel Urban :

@Caleb Heimsoth I will definitely do that! When do you find out about the years left on your CapEx items?

Usually the inspector tells me that