New member from Las Vegas

10 Replies

Lived in Vegas 22 yrs, I'm 32 and tired of working for people with no  "real" freedom in sight!! or any decent "for sure" retirement security......Interested in Residential Holdings:  Condos/ Single Family/ Multi's....Been immersing myself in YouTube real estate videos and books for last 6 months...Was wondering what the standard % is you should put back from the rent for vacancies and maintenance after the initial 1st and last and security deposit? ......Thanks for your advice.

@Donald Bandy

Welcome to the site.

I would expect to use half of your rent towards expenses. Say rent is $1,000. Expect $500 to go towards your costs when you have repairs, taxes, saving for a new roof, evictions etc.

initially it will be high as you try to bring a lot of items up to code or in better condition to rent for a higher amount.  Depending on the condition, anywhere from 25 to 50 % of the rents to cover expenses.  Others use 6-8% for ongoing maintenance and vacancies each.

Originally posted by @Donald Bandy :

Lived in Vegas 22 yrs, I'm 32 and tired of working for people with no  "real" freedom in sight!! or any decent "for sure" retirement security......Interested in Residential Holdings:  Condos/ Single Family/ Multi's....Been immersing myself in YouTube real estate videos and books for last 6 months...Was wondering what the standard % is you should put back from the rent for vacancies and maintenance after the initial 1st and last and security deposit? ......Thanks for your advice.

Hi Donald and Welcome to BP,

The % depends on the property, current condition, and age. For me, I'm calculate 23.3% for Vacancy, Capex, and Repairs, however, I only use these figures for pro-forma calculations. Don't forget to include taxes, insurance, HOA Dues, etc. As others have pointed out, this often runs 50% of the gross rents.

In reality, I have a contingency fund which totals 10% of my entire holdings. I'm using this as a 'reserve' fund, so when things come up, I pull from that fund to complete the necessary work and then replenish it from rents until it is full again. If you're planning on only using rent to cover all repairs and expenses, you can be easily burned by an AC that goes out or a roof that needs to be replaced. This practice also shows financial stability and will help you obtain commercial financing in the future. 

Also, you can't use the security deposit for anything, while you're holding that money, you need to put it into a separate account and hold it. The security deposit ultimately belongs to the lessee and can't be part of your operating budget.

-Christopher

Its cool hear....people are always wanting to move hear so that's good for holdings and real estate in general.... I know my journeys just beginning... Thanks 

Hello @Donald Bandy ,

Regarding the amount you need to allocate for rehab, maintenance, vacancy and similar issues that are "standards":

Rehab Cost

There is no "standard" rehab cost, anywhere. For example, in a recent article titled "What It's Actually Like To Buy A $500 House In Detroit", the author estimated that rehab costs in Detroit average $75–$100 per square foot, and that's just for bare-bones repairs, it doesn't include anything structural like a roof or foundation. So, for a 1,000SqFt house you would spend $75,000-$100,000 in rehab. An investor I spoke with who was purchasing rental properties in Indianapolis told me that his average rehab was between $20,000 and $30,000 on $60,000 properties. So, you can see that there is no "standard" rehab cost.

In Las Vegas, our typical rehab cost for a class A or B property is between $4,000 and $5,000. That said, we recently rehabbed an excellent property in Summerlin (one of the best areas in Las Vegas) with tile floors, paint and some landscaping and the total was approximately $9,000.

Ongoing Maintenance

Maintenance costs can have a major impact on profitability. Here are some generalizations about ongoing maintenance costs:
• Older properties require more maintenance than newer properties.
• Composition roofs require more maintenance than tile roofs
• Properties in climates with hard freezes require more maintenance than properties in milder climates.
• Properties in locations with a lot of moisture require more maintenance than properties in dryer climates.
• Wood siding requires more maintenance than aluminum or stucco siding.
• Properties with lush vegetation require more maintenance than properties with little or no vegetation.
• The type of property effects your maintenance costs as well. For example, in Las Vegas townhouses and condo exterior maintenance is part of the HOA fee.

When you look at the maintenance elements in a residential property you can generally divide the elements into two groups: systems and structure.
• Systems include HVAC, water heater, plumbing and wiring. In general, the ongoing maintenance costs of all these components are more dependent on age than location. A water heater in Las Vegas will last just about as long as a water heater in Atlanta.
• Structure includes the foundation, the walls, the windows and the roof. In Las Vegas, the foundation is a pre-stressed concrete slab. I have never experienced a problem with a foundation in Las Vegas. The exterior walls are stucco and rarely need maintenance due to the dry climate. Wooden fences are rare; fences are normally concrete block so little maintenance is ever needed. The windows and doors (including the garage door) are metal so little maintenance is required. Roofs are usually tile and as long as the tiles are not broken or missing there is no roof maintenance required. Landscaping is usually desert style - rocks with a few hardy plants. All this is in contrast to the properties I owned in Houston and Atlanta where I always seemed to be replacing siding, roofs and maintaining the landscaping. 

In Las Vegas I typically divide maintenance into two categories:

First Year

Many of the properties have been vacant for some time or the prior residents let maintenance slide. We handle the first year maintenance costs using a home warranty (careful here, only a couple of home warranty companies consistently perform.) With the home warranty the maintenance cost for the first year is typically about $1,000 ($500 for the home warranty and $500 for the call-out and miscellaneous costs).

Second Year+

According to my clients, after the first year maintenance costs are averaging $600/Yr. You will have larger expenditures from time to time when systems like the water heater fail but these expenses are not frequent. Also, who you have do the work will have a significant effect on the cost.

Vacancy Rate

The class, type of property and location of the property make a significant difference on time to rent or vacancy rate. With proper selection and preparation, our single family and townhouse time to rent has not exceeded 3 weeks in years. Most are rented in under 2 weeks. Condos, multi family and class C properties are a different story. 

In Las Vegas, condos tend to compete with apartments. Condos near the new large apartment complexes tend to have longer time to rent and lower rental rates. Condos in the city nearer to the strip on major bus routes do better. 

Class C properties are generally older and are located in less desirable locations. These properties generally need significant rehab and significant tenant damage is much more likely. The tenant population is primarily cash based so leases mean little and many have government subsidies. Skips and evictions are common. All these contribute to higher vacancy rates and higher maintenance costs. (This is not to say that class C properties can not generate high returns.) 

In Summary

You want to work with a Realtor who primarily deals with investment real estate and a good property manager who handles the class of properties you are considering. Property managers can be a gold mine of information. They work with properties and tenants every day of the week. They know what rents and what doesn't; what to avoid and what to search for. You also need to match the property manager to the type of property. 

Donald, I hope the above helps.

Awsome post Eric... A lot of good stuff desert investors benefit from...if you can take the heat that is.... Thank you so much, I'm saving this one!!!! Take it Easy!!

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