Average Memphis Maintenance & CapEX (Turnkey Properties)

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Average Memphis Maintenance & CapEX (Turnkey Properties)

Caleb Heimsoth
Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes

Hi Everyone,

I am looking at investing in Memphis through a turnkey provider. I am wondering what local investors use for Maintenance and CapEX rates for Memphis? From what I've seen so far, most Turnkey providers don't really account for maintenance or CapEX or they just group them together, which I disagree with. Roughly speaking, I am considering using 5% of monthly rent for CapEX and 6% for vacancy. Does that sound too low, or too high? This would be a fully rehabbed property, so I am expecting CapEx would be low, but I want to make sure I save up enough during say the initial 5 years so I don't lose money when say a roof needs to be replaced. If it helps more I would be looking at properties in a B neighborhood in the 90-100k range.

Please let me know if you need anymore information.

~ Caleb

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Curt DavisBusiness Member
Flipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
9y

@Caleb Heimsoth

Giving you a realistic example here is what I see:

$80k purchase, Annual ins $550, annual taxes $1,200, 20% down financing at 5% IR, Estimated $5k total closing cost, 8% vacancy, 8% maintenance, 8% property management, 5% capex, $895 monthly rent = $147.15 in total Net monthly cash flow.  This is what the home looks like with all your factors in place. 

Just for fun, you take out capex, maintenance and repairs and go with a gross cash flow figure your looking at about $334.00 monthly. 

Many companies will show you how they have decided to provide what the cash flow will look like and no one is wrong in doing so. All that matters is what you factor into your own proforma. 

Same example deal above just calculated differently. One looks great and one looks not so great but same deal regardless. 

Good luck

Curt Davis - KAIZEN Realty538 Reviews
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  • Hadar OrkibiPro Member
    Rental Property Investor · USA / NZ · Member since 2016 · 1k+ posts · 812 votes
    9y

    Hi @Caleb Heimsoth  you are right that some TK providers allow for lower capex at 5% do to the property been fully rehabbed. Especially if the the large items like Roof, HVAC, Hot water were replaced.  

    I work my numbers on 8% for Capax, Maintenance, vacancy and 10% for property management.

    If the deal doesn't stack up on these then it's not much of a deal anyway...

    Don't forget to add Taxes, insurance, and other expenses that maybe applicable like HOA, Home Warrenty (if you choose to have one), or any utilities if payid by the owner. (More often in multi family)

    3Reply
  • Caleb Heimsoth
    OP
    Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    9y

    Hi @Hadar Orkibi,

    Thanks for the reply! I just want to make sure I'm understanding you correctly. Are you saying you use 8 percent of monthly rent for CapEx, Maintenance and vacancy combined or 8 percent each? Is that for in Memphis or do you just use those numbers in general?

    0Reply
  • Hadar OrkibiPro Member
    Rental Property Investor · USA / NZ · Member since 2016 · 1k+ posts · 812 votes
    9y

    I use 8% each. And you can calculate it on the BP Rental Calculator to see the end results. 

    Yes Im using this number for any Residential USA property I buy. 

    In reality if you buy from good TK provider in Memphis that completely renovated the house you can allow for lower CapEx at say 5%, but i like to have buffer.

    3Reply
  • Stephen Akindona
    Investor · Memphis, TN · Member since 2013 · 741 posts · 845 votes
    9y

    Hey @Caleb Heimsoth speaking as a local turn key provider we will often omit vacancy and maintenance and other expense assumptions only because every investor is different, some are more conservative and some are more aggressive. We give you the numbers we know! Rent, taxes, insurance and property management. 

    To answer your question I think on a fully renovated property 5% is reasonable for capex. I would bump vacancy up to 8% only because using a property manager makes turnover time more of a process than if you were self managing.

    1Reply
  • Caleb Heimsoth
    OP
    Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    9y

    @Stephen Akindona I think that's completely fine for Turnkey Providers to do that. I am just trying to narrow down what I should be using for vacancy, maintenance and CapEx. You didn't mention maintenance, do you think 5 percent for that is reasonable, given it would be a completely newly renovated property?

    0Reply
  • Stephen Akindona
    Investor · Memphis, TN · Member since 2013 · 741 posts · 845 votes
    9y

    I am sorry yeah 5% for maintenance works! Did you get a new roof and new mechanical equipment with the purchase? If so I think your good! If not maybe look into a home warranty to protect you against that old equipment, but 5% works

    0Reply
  • Curt DavisBusiness Member
    Flipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
    9y

    @Caleb Heimsoth

    5% for maintenance is good if the home had a sizable renovation or if your property is in a higher end area. Most investors these days are doing a minimum of 8% in upwards of 10%. 

    Make sure what your looking for in the end from a cash flow standpoint is realistic.  When you start factoring all these expenses you will quickly turn a good deal into one that doesnt look good. Many other investors also factor in a % from the lease up fee from property management. 

    Good luck

    Curt Davis - KAIZEN Realty538 Reviews
    WebsiteView Page
    3Reply
  • Caleb Heimsoth
    OP
    Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    9y
    Curt Davis Thanks for the input. In your opinion, what would be a reasonable cash flow after all expenses? I was hoping to get at least 250 per month. Do you think that's pushing it with the turnkey model?
    0Reply
  • Curt DavisBusiness Member
    Flipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
    9y

    @Caleb Heimsoth

    Giving you a realistic example here is what I see:

    $80k purchase, Annual ins $550, annual taxes $1,200, 20% down financing at 5% IR, Estimated $5k total closing cost, 8% vacancy, 8% maintenance, 8% property management, 5% capex, $895 monthly rent = $147.15 in total Net monthly cash flow.  This is what the home looks like with all your factors in place. 

    Just for fun, you take out capex, maintenance and repairs and go with a gross cash flow figure your looking at about $334.00 monthly. 

    Many companies will show you how they have decided to provide what the cash flow will look like and no one is wrong in doing so. All that matters is what you factor into your own proforma. 

    Same example deal above just calculated differently. One looks great and one looks not so great but same deal regardless. 

    Good luck

    Curt Davis - KAIZEN Realty538 Reviews
    WebsiteView Page
    6Reply
  • James Wise
    Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
    9y

    @Caleb Heimsoth You can use what is called the 50% to run a preliminary estimate of expenses on potential rental purchases.

    Ex; House rents for $950 assume that you will need to spend $475 to operate said property every month.

    This is of course just an estimate as there is always an unlimited number of variables at play which will cause your property to perform better or worse than any pro forma at any given point in time.

    1Reply
  • Ryan Ward
    Investor · New York, NY · Member since 2017 · 7 posts · 3 votes
    7y

    Re-upping this thread from a couple years ago. What sort of rent range are these numbers (Capex/Maint/Vacancy and 10% for PM) applicable to in the current market? From my limited experience (I have two rentals, soon to be 3), it seems reasonable for properties that rent in the ~$800-$850 bucket? And seems like they'd be a bit high for a $1k+ rental that has had a decent renovation?

    0Reply
  • Bo Kim
    Rental Property Investor · Los Angeles, CA · Member since 2016 · 141 posts · 123 votes
    7y
    Originally posted by @Ryan Ward:

    Re-upping this thread from a couple years ago. What sort of rent range are these numbers (Capex/Maint/Vacancy and 10% for PM) applicable to in the current market? From my limited experience (I have two rentals, soon to be 3), it seems reasonable for properties that rent in the ~$800-$850 bucket? And seems like they'd be a bit high for a $1k+ rental that has had a decent renovation?

     Multiple scenarios that I UW differently:

    1) For me and my 3 markets it depends as some homes I put in all new CapEx before I moved a new tenant in and I go 5% maintenance and 8% vacancy.

    2) If its a mixed bag of CapEx useful life (e.g. roof/HVAC have 5+ years) I do 5% maintenance and 5% capex on top of 8% vacancy.

    3) I have a PM who does 8% PM fees and finds 18 month leases, so sometimes the 8% vacancy is put down to 5%.

    But with any assumption, these are arbitrary and you dont want to push the needle one way too far to talk yourself out of an investment OR into a bad one...just make sure you set your expectations by talking with the locals and don't fudge them once a lead rolls around just to take down a deal.

    1Reply
  • Tristan H.
    Rental Property Investor · Memphis, TN · Member since 2013 · 56 posts · 29 votes
    7y

    @Hadar Orkibi I use almost exactly the same numbers for Memphis- instead of 8% each for maintenance and CAPEX, I just group them as 15% total. Then I assume one month of vacancy ~ 8%.

    1Reply
  • Dean Letfus
    Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes
    7y

    I use 10% vacancy and 2k a year maintenance.  This would be a minimum if you want your spreadsheet to match your experience.

    We tracked our clients for some years on over a hundred rentals and generally they achieved 78% of what their spreadsheets said they should.   Things like condensers, furnaces, trees and roofs will always dent your returns over time.

    1Reply
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