Can anyone point me in the direction of how to determine what percentages to use for the Maintenance & Repair and the CapEx features on the Rental Properties Calculator? Is there a default percentage I should be using when calculating for a specific piece of property or is it a case by case basis? If it is a case by case basis how do I go about determining what those percentages should be? Thanks in advance.
It's going to be a case by case basis. Each building will have needs based on age, as well as the overall care it has received over its life. I use a 10% as a starting point for repairs and don't use capitol expenditures when determining market value. With out getting to deep in to this capitol expenditures should in theory raise the value of the property going forward. For instance adding new landscaping would be a CapEx, since it will increase curb appeal and perceived value in the eyes of the renter or buyer. This will effect the value going forward and not the value you are purchasing today. If you are fixing or replacing an existing item it is a replacement and not a CapEx. Replacement reserves of 5% would be a cost to figure in place of CapEx. Hope that makes sense.
I use $1,500 to $2,000 per year for maintenance and capital expenses. I do not use an accounting or tax definition. Maintenance are the expenses that happens every year and capital expenses are those which would happen periodically. For instance, a new roof would be a capital expense.
I don't use a percentage because the cost does not seem to differ whether you are charging $500 peer month as rent or $1,000.
This is not the only way to do it but only my way.
Hope it helps.
10% for each of those is a pretty common estimate. Another simple estimate is the 50% rule.
Generally over time the cost associated with running a rental property are roughly 50% of the gross rents.
Ix: House rents for 1k/mo. Your estimating you will spend about 6k/mo every year operating that property.
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