Question on COC calculation standards
I've been following a lot of discussion groups on social media, as well as watched multiple videos / read articles, and have a question regarding COC calculations. I've been noticing that it doesn't always seem apples to apples when I learn about the returns others are getting. The biggest inconsistencies I see are with property management and initial rehab. I find myself wondering if I should be doing two COC calculations, one for my personal returns, and the other for an attempt at benchmarking. I will elaborate below.
Not that I should be comparing myself with others per se, but I do like to know that I am generally on the right path and the best way is to see what the industry standards seem to be.
For property management, should this technically be considered an optional/operational expense? When trying to figure out if my returns are on par with others', should I include property management, or take that into account for my personal returns/goals, but not use it when figuring out whether it's a good deal, per se? Similar to how cap rate doesn't take financing into account. This seems to be especially applicable to those with only a few properties who may not yet be using a property manager. What percentage of folks would you say probably include PM in their calculation?
Regarding initial rehab, someone who does a full rehab (full gut, all new appliances, fixtures, outlets etc) should theoretically encounter a lot less maintenance/repair expenses for the first 5-10 years... In comparison to someone who someone who just took over and will be fixing existing items as needed. In this case, the first person's COC calculations, assuming a 'standard' 5% for repairs (or insert whatever number you want) will reflect lower returns than they will actually yield in those first 5-10 years. At that point you could technically subtract the difference from the initial rehab cost to get a more accurate gauge on COC return. How significant of a difference do you think this would make in actual vs theoretical returns?
What are your thoughts? Am I overly complicating this or could these types of considerations potentially turn what seems like a mediocre deal into a good deal, as an example?
Thanks in advance for your input!