I've been running numbers on rental properties in the Harrisburg area in preparation for buying my first property next year. I am curious to know what folks in the area are using for maintenance and capex numbers. I've read a lot of different things but I figure it varies for different parts of the country. I know it probably varies depending on the street and the individual house too but as a newbie without a lot of experience what would be some good numbers to quickly run the numbers on properties as I browse through the MLS?
I was using 6% capex and $100/month/unit for maintenance but I'm thinking the $100 maintenance number is a bit high. I'm also not sure a percentage would be good to use for either of these since varying rents don't necessarily correlate with these expenses. I'm thinking maybe $120/month/unit for both. Thoughts?
It depends on the building. Generically I use 5% vacancy and 5% maintenance. But if the building has just been rehabbed, expenses should be lower, if its older and neglected then expenses are higher.
Why are you waiting until next year? Don't wait to buy real estate....
Thanks @David Krulac ! That sounds reasonable. I'm trying to err on the conservative side since I'm a newbie to rentals and haven't yet developed the intuition for maintenance and repair costs but I'm trying not to be so conservative that my numbers shut out potential deals. They are already hard enough to find on the MLS.
I would have loved to buy a house last year but I was a job hopper for many years after college so unfortunately no one will lend to me until I can show them 2 years of consistent self employment income from my business. I've tried several lenders and they all told me the same thing. I don't want to keep taking the hit to my credit score every time I apply so I decided to just wait it out until I know I can qualify.
I agree with @David Krulac , do not wait to buy property. To determine what numbers and percentages to use for your projections, here are some useful methods that I've used: go look at properties for sale, network with local investors, and manage a property yourself. When looking for my first deal, I stuck with the MLS to find potential "deals". I would request financials from the sellers and tried to find commonalities, or trends. Applying my own knowledge and common sense, I began to develop my own numbers.
Once I ended up with a property, I wanted to manage it myself. Not only did it force me to setup my accounting system, and other property management systems, it forced me into the weeds. After a year of managing the property, I know exactly how to manage a property in market and I know exactly what my operating expenses will be.
Your first deal is where you will learn, so expect to take some calculated risk.
Thanks @Jack Macioce ! Sounds like its mostly just kind of winging it the best I can with the knowledge I'm able to obtain until I get my first property and get the first had experience with it. I just worry about buying a bad property that has no or negative cash flow but I think I can mitigate that risk pretty well with conservative numbers.
I also agree that I shouldn't wait to buy a house and I really wish I could but unfortunately as I stated above no one will lend to me until next year when I have 2 years of self employment income.
You should learn enough now to not a buy a bad property, but realize that your intentions with the first property may not (and will not) meet your financial goals.
Have you talked with local credit unions? Would you savings significantly decrease after a down payment on a property? As a personal objective, I determined that three month's worth of living expenses is a good "reserve" to have. Obviously, as your progress through life, you need to increase your reserve to match additional living expenses. The idea behind this reserve is that you should be saving for it anyway, and potential lenders will see that you are sitting on a stockpile of cash not needed for a down payment.
I have spoken with some small local banks but I don't believe I've tried a credit union. I have a significant amount saved for a down payment so I would definitely still have several months of living expenses especially if I use a low down payment option.