Updated over 4 years ago on . Most recent reply
[Calc Review] Help me analyze this deal
This is potentially my first investment property and it was my first time to use the calculator. I think I have input everything correctly. Any advice is appreciated.
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#2 Commercial Real Estate Investing Contributor
- Cincinnati, OH
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#2 Commercial Real Estate Investing Contributor
- Cincinnati, OH
@Jessica Ponder, beyond potential issues with the costs of the loans noted above, there are some things to think about with the reserves. Vacancy maybe high, but this is something you should confirm with your market. Most banks will assume 5%, and it is a reserve amount, not an actual expense. Many of my rentals I will have rented for several years straight then down about 1 month for touch ups/repairs. This can be done quicker, or if major items need addressed, it could be longer.
Repairs are the same way, you are budgeting reserves for a "might happen" scenario. 10% is not a bad number, and there could be years you are above that and years you are below that. The other item like this is Capex. Everything in a house wears out eventually. Roofs, HVAC, appliances/kitchen remodels, flooring, interior and exterior paint. Some of these may be repair items, others are Capex, but it all falls under similar work, in my eyes, i.e. paint will always be a "repair" from an accounting standpoint, but there are the turnovers where I can just touch up spots, and then every 5 years or so, I need a full interior repaint to bring the color scheme back to modern aesthetics.
But back to Capex, you have two options: reserve a little each month to have it when the expense is needed, or hope to have the cash available when needed. Typically, starting out, I would maintain at least 10k in available cash at essentially all times. This could probably be lower if all items are in near new condition, but I have had $6k in gas line repairs for gas that couldn't be smelled, but the utility transfer caused a pressure test that found multiple leaks throughout the system. Or a water line could freeze and burst in 2 months and create a 3-4k repair shortly after buying.