How much do you set aside for CapEx, PM, maintenance, etc.?

Question

Thanks in advance for your help,￼

I am looking to BRRRR.

I was wondering What percentage of the mortgage amount would you set aside every month to cover the eventual cost of taking care of a property. Numbers I’m specifically looking for are the following, but please add to the list with your recommendations:

Vacancy (10%?)

Cap Ex

Maintenance (10%?)

Prop Management

Utilities that you are covering

In other words, I want to find a property where the rent covers the mortgage, as well as all those expenses because eventually they will come up.￼

Bridget Y. · Answer

A while ago I was in on a webinar with Brandon Turner and he used the following percentages of the rental income to analyze his deals and I have been using that for my first deal as well.

Vacancy 8%

Cap Ex 8%

Maintenance 8%

Prop Management 8%

Christian Rojmar · Answer

@Farshad Mansouri

I typically use the following as a starting point and then adjust based on location, condition of property etc.:

Vacancy - 6-8% (highly dependent on area - I only look in high quality areas)

CapEx - around $150 for a 1,500 sqf SFR (highly dependent on quality of property, location, if you are rehabbing the property upfront, and how long you are planning on keeping the property). Do not use % allocation for CapEx because CapEx does not change with value of property (it will change based on size of property however so need to consider that aspect)

Maintenance - I typically bake this into CapEx costs which puts the total closer  to around $225 for a 1,500 sqf SFR (also dependent on quality of property, upfront rehabbing, etc.). I've heard people using around 15% for both CapEx and maintenance but again, CapEx as a % of rent does not make sense IMO.

Property Management - 11%

I am not sure about utilities - Not something I would pay.

David Barnett · Answer

If you are planning to BRRRR a property, I would bring the percentages for maintenance and Capex way down (depending on level of renovation).  If you update most of the items during the rehab, you should have at least a few years with no/minimal repairs or capex expenses.  I would also try to pass off utilities to the tenants, if allowed where you are investing.  Vacancy at 10% is probably a bit high.  I would ask a local, reputable property manager of the vacancy rate in the area where you are investing.  I would also look at the property management fee in the area and back into it.

Bill B. · Answer

You also have to use numbers for your neighborhood. PM here is 8% plus $300 to get a tenant. I’ve seen people pay 10% plus a whole month’s rent, that’s a big difference. In Vegas we have stucco siding and tile roofs. I don’t know anyone that has painted the exterior of a house or replaced a roof. In MN you might need a new roof every 8-12 years and you might be painting the siding or the redwood fence. Do you have to pay for snow removal or lawn mowing? Vacancy varies based on market and housing type. A studio apartment might turn over every year, here a SFR might go 4-6 years between turn over. Is the property 5 years off or 105 years old? I just don’t think you can get reliable numbers from anyone who isn’t doing deals on your market with your property type and age.

I’m not saying don’t start or take chances, I’m saying numbers from a guy in Miami don’t mean much to a guy in Alaska or a woman in Hawaii. Some people have to keep reserves for large repairs every years or two versus a condo which might never have a repair larger than a fridge.

GL whatever you do.

Andrew Postell · Answer

@Farshad Mansouri I am using 15% on my calculations.  Historically, I am less than that but that's still the number I use when analyzing a property.

Kenneth Garrett · Answer

@Farshad Mansouri

Your calculating a percentage of the rent.  You can see everyone does it a little different.  Just make sure you preparing for the big ticket items.  Roofs, furnaces, a/c etc.

Farshad Mansouri · Answer

@Kenneth Garrett

Great. Thanks a lot!

Farshad Mansouri · Answer

Thanks all.  And just to be clear, you’re calculating a percentage of the rent? Or a percentage of the mortgage?

How much do you set aside for CapEx, PM, maintenance, etc.?

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