Do expenses outrun appreciation?

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*This link comes directly from our calculators,                  based on information input by the member who posted.

Tim Herman · Answer

@Elizabeth Flowers unless you are in a super depressed area or class d your vacancy is double what I use. 15% is renting each unit only 10 months out of the year. This looks like a better flip than a buy and hold. If you are right and 5k gets you double the ARV. Figure 8% selling cost or 4k you would net 20k on 26k investment or 76% roi vs 5%.

Bryan Noth · Answer

The Capital Expenditures in the linked calculation are at 200% monthly, if that is true, it is impossible to cash flow.  Ever.  Cap Ex is often calculated closer to 10-20%, though this can be highly dependent on the state of the property and if maintenance has been deferred.

Bryan Noth · Answer

@Elizabeth Flowers looking at the calculations you shared I would expect the property you shared to cash flow.  Can you please share that report again with a corrected cap ex rate?

Many of the percentage calculations are based off your market data, ie. what is a typical vacancy rate for your investment class and area?  (A knowledgebale property manager can help tremendously there).  It may also be prudent consider the amount of deferred maintenance and remaining useful life of big tickets items.  When a property built in 1988 has the original air condition condenser, it is a safe assumption that the cap ex will be cashed in sooner rather than later.  I pair cap ex and maintenance together and run three versions through a calculator when considering a purchase: good (10%), average (15%), and bad (20%).  Ideally, I still want the bad version to leave me feeling ok.  These are numbers that have worked for me in my area and based on the data we have from our own properties.  Your own numbers can be quite region specific.

Bryan Noth · Answer

@Elizabeth Flowers yes, Austin and San Antonio.  They are different markets so the fit depends a lot on your own personal investing strategy and preferences.  If you are interested we have some great contacts

Bryan Noth · Answer

@Elizabeth Flowers Those numbers are fairly conservative.  20% cap ex, 10% repairs, 15% vacancy composes 45% of your monthly expenses without tax/insurance/mortgage.  The math you have shown should cash flow, that is just a lot of expenses, and 15% vacancy is not a number I like for expense ratio or as an indicator of local market economic stability and/or growth.

Elizabeth Flowers · Answer

Well I can fudge the numbers but those are the numbers so guess I'll look in a new area! Haha.  Do you invest in Austin?

Elizabeth Flowers · Answer

Bryan - I realized this finally.  Silly mistake on my part.  Thank you for the response.  I am still having trouble getting my properties to cash flow even in scenarios.  Do you have any examples of good scenarios you have run?

AJ Singh · Answer

@Elizabeth Flowers

maybe you should analyze why these duplexes are cheap and no local investor has already bought them up

i have a portfolio in memphis as well but have never bought this cheap property. these are in bad neighborhoods and quality of tenant is extremely poor.

Jaysen Medhurst · Answer

@Elizabeth Flowers, have you considered a larger MFR instead of a deal like this? 8 duplexes gets you no efficiencies of scale. In fact, I find duplexes are usually the worst of all worlds: Higher per-unit costs than larger MFRs without the efficiencies of scale and additional expenses that SFRs don't have (lawn care, snow removal, water/sewer).

Elizabeth Flowers · Answer

@Tim Herman Yes it is in Memphis, TN so relatively mediocre area.  I know flipping makes a lot of sense but quite frankly I am time poor and have cash so I'd rather buy and hold.  This property is actually one of 8 duplexes being sold together, it's an interesting property.  I was analyzing 1 duplex because the numbers are easier.  Essentially I would be evaluating each building separately and then make a larger offer but the purchase is too high a risk due to the overall cost (they're asking 432k for it and say it needs 130k in rehab - HAHAHA no way man.) What areas do you invest in, if I may ask?

Thanks!

Do expenses outrun appreciation?

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