Investor · San Jose, CA · Member since 2017 · 118 posts · 108 votes
7y
Hey Diana,
Here are the guidelines I use, though you'll need to make variations based on your market, age of properties, etc. This is specific to single family homes, so you could definitely lower these amounts, especially CapEx, for a condo where most of the major expenses will be covered by your HOA.
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. 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 for CapEx: 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.
Monthly budget for OpEx: Operational expenses, like fixing locks, doors, unstopping toilets, etc are funded through a budget of 3% of rent. I don't set this money aside like I do for Capex, but I do budget for it when I'm calculating the financials on a property.
@Joe Hines
Hey Joe
I’m working to follow the advice that you have me a couple of months ago. Initially it felt like I was cutting into the profit way too much, but this weekend we had to fix something connected to our heat pump and I was glad to have reserves.
Thank you!