@Michelle Harrington How did you arrive at your variable costs? Vacancy of 3% is your tenant staying an average of 33 1/3 months. I use 8% or 1 turnover per year. My average cost for service is $150. It would take 5 months of reserves to pay for a service call. I like to build this reserve up to take care of painting between turnovers. My minimum is $50 per month. What is in your capex budget? Mine includes roof, floors, hvac, appliances, hot water heater, bath remodel, and kitchen remodel, etc. Does $50 per month cover all those items. Let]s look at floors. 10 year life span. Assume 1500 sf of flooring. My area it is $6 sf to replace with a moderate cost lvp. $9000/10 year life span/12 months in a year=$75 per month for 1 item. My minimum is $100 per month.
Originally posted by @Michelle Harrington :
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Hi Bigger Pockets Community! May I get an input about this property please? Anything would definitely appreciated!;)
I think your assumptions are OK. It depends on how much you really like this house, location, etc...At least you are budgeting for cap ex and have a vacancy rate. I have seen a lot of people put a 0% vacancy in KS for their underwriting which is not realistic. I do think 5% vacancy is more standard in KC right now, pending location and quality of home. Hope that helps and thanks for sharing!
@Tim Herman what is 33 1/3 months mean please? anyway, I just thought that because of this location is at C/B class area, the 3% for vacancy should be okay. This house is being flipped by the seller. It will be turned in to me after the seller's is done renovating it which is around April 26. But you made a good point about the capex budget. I like how you explained it in detail with an example. I should review my capex budget again. I really appreciate your response! Thank you so much for sharing!
I’m so glad to get an input from someone who is from the area. I will change my vacancy rate to standard 5% to be more realistic. Thank you for your advice!
@Michelle Harrington When people say 5% vacancy factor that is over a large number of units. If you talk to a property manager and they manage 100 units, they can have 5 vacant for a 5% vacancy factor. As an individual investor it usually takes 1 month to turnover a rental. 1 month vacancy/33 1/3 months=3% vacancy factor for you as an individual. So for you a 5% vacancy means you will turnover the apartment every 20 months. 1/20=5%. Any turnovers quicker than that affects your vacancy factor and your next tenant has to stay longer to get back to the 5%.