More Accurate Pre-Purchase Calculations (Focus on Repairs/Maint)

[William C.]

As I "run the numbers" to estimate the cashflow potential of a property, a sticking point for me has always been accurately representing the Vacancy Rate and the Repairs/Maintenance costs. The Vacancy Rate is something I get from asking local property management companies what they typically experience for similar rentals. I understand they have an incentive to under-represent this figure. The figure I struggle with is a number for projecting monthly Repairs/Maintenance. For quick calculations I always represent this number as a percentage of the monthly rent.

Example: Monthly Rent = $2000 - Repairs/Maintenance = 15% - Estimated Repairs/Maintenance Budget = $300 per month

I have heard rules of thumb ranging from 5 to 15%. I understand much of it will come down to the age and prior upkeep of the property. I also understand erring on the side of caution is important. I am curious to know how other investors go about estimating as accurate a number as possible while never "fudging" the numbers. Thank you taking the time to answer.

[Greg Weik]

I don't find the percentage approach to be particularly helpful when anticipating a property's maintenance needs.  What you really want is a probability and price analysis.  I.e., how OLD is this system (furnace/AC/hot water heater, etc.), what's the expected lifespan, and what's the cost to replace it if it fails?  

If you use this approach to repairs, and if you're conservative (and somewhat knowledgeable or able to research the average lifespan of various systems), you'll be a lot closer to reality than just tossing a percentage to the wall.  I manage hundreds of properties: some have no maintenance for years, and some have maintenance every month.  Gotta know the systems. 

Vacancy times are another one where clients often ask the wrong question, which is "what are your average days on market?" 

The right question is "what are the average days on market for my property, located here, in X condition, this time of year that will/will not allow pets."  That is the question you're really asking anyway, so just ask it.  :)