Vacancy & Ongoing CapEx

[Robert Meagher]

Hey team,

I'm 26 y/o and very new to RE investing. I'm exploring the possibility of house-hacking in the Chicago area. I have a Property Analysis spreadsheet that was shared with me by a friend. As I evaluate different options here, I wanted to ask - what are fair vacancy and ongoing capex rates to account for in my analysis? 

I currently have 8% for vacancy and 5% for ongoing capex. Are these fair estimates?

Similarly, if anyone is open to connecting with a stranger, I'd love the opportunity to hear from someone who's already house-hacked a property in the area and hear their story (and advice). 

Thanks!

[David Ramirez]

It all comes down to the property type and location, but as a general rule, I'd say those estimates seem pretty reasonable!

[Sarita Scherpereel]

Hi Robert! Welcome to the Community. Glad you're here. I agree with what @David Ramirez said. Location especially here in Chicago is very important. So is the age and condition of the property for CapEx estimates. I sent you a DM with more info. Best of luck!

[Crystal Smith]

Quote from @Robert Meagher:

Hey team,

I'm 26 y/o and very new to RE investing. I'm exploring the possibility of house-hacking in the Chicago area. I have a Property Analysis spreadsheet that was shared with me by a friend. As I evaluate different options here, I wanted to ask - what are fair vacancy and ongoing capex rates to account for in my analysis? 

I currently have 8% for vacancy and 5% for ongoing capex. Are these fair estimates?

Similarly, if anyone is open to connecting with a stranger, I'd love the opportunity to hear from someone who's already house-hacked a property in the area and hear their story (and advice). 

Thanks!

The vacancy rate is dependent on location, location, location. When we run numbers in certain neighborhoods on the North Side we'll use 5%. On the South Side, we'll use 10% depending on the block.  You probably can't go wrong using 8%.  Regarding Capex- Much depends on whether or not you are planning on purchasing a property that has already been updated to today's standards or hasn't been upgraded in a while.  Please note that the numbers are independent of whether one house hacks or not.

[John Warren]

@Robert Meagher you have a decent starting point, but I don't think you would normally see 8% vacancy in a good neighborhood. For instance, if you had a vacancy in a three unit and had to do a unit turnover for a month, and then you took a month to lease it up (reasonable assumptions), your vacancy would only be 94.4% that year. There are often years in small multiunit buildings where you don't have turnover, or where you can prelease a unit to completely eliminate vacancy.  

When it comes to maintenance and CapEx, a lot of this depends on the quality of the building when you take over. Has the building been gut renovated (expect minimal maintenance)? Is this an older building that needs a lot of work (higher maintenance). If the building is in great shape, then these may be way too conservative. If the building is a fixer upper, then these may be way off for year one and two until you get things under control.

[Paul De Luca]

Quote from @Robert Meagher:

Hey team,

I'm 26 y/o and very new to RE investing. I'm exploring the possibility of house-hacking in the Chicago area. I have a Property Analysis spreadsheet that was shared with me by a friend. As I evaluate different options here, I wanted to ask - what are fair vacancy and ongoing capex rates to account for in my analysis? 

I currently have 8% for vacancy and 5% for ongoing capex. Are these fair estimates?

Similarly, if anyone is open to connecting with a stranger, I'd love the opportunity to hear from someone who's already house-hacked a property in the area and hear their story (and advice). 

Thanks!

 Personally I think 8% vacancy is too high unless you're buying in a D class neighborhood. I use 5% most of the time.

5% for CapEx - the amount you should budget for CapEx heavily depends on the age of the existing mechanicals and building systems. For a newly rehabbed property, 5% is probably unnecessary but it also depends on the location and total gross rent.

5% of gross rent of $6k = $300/mo

5% of gross rent of $2k = $100/mo

The cost of CapEX doesn't scale just because you're buying a more expensive property with higher rents. So given a $100k property with the same building systems as a $500k property, the cost of capex in theory should be about the same.

I've also done a few house hacks in Chicagoland, so if you have questions feel free to PM me.

[Sean McKee]

Quote from @Robert Meagher:

Hey team,

I'm 26 y/o and very new to RE investing. I'm exploring the possibility of house-hacking in the Chicago area. I have a Property Analysis spreadsheet that was shared with me by a friend. As I evaluate different options here, I wanted to ask - what are fair vacancy and ongoing capex rates to account for in my analysis? 

I currently have 8% for vacancy and 5% for ongoing capex. Are these fair estimates?

Similarly, if anyone is open to connecting with a stranger, I'd love the opportunity to hear from someone who's already house-hacked a property in the area and hear their story (and advice). 

Thanks!

Like most have said here. 8% vacancy is probably too high.

For capex and maintenance I’m not as big of fan of the percentage method anymore. They are great for quick estimates, however you can sometimes severely underestimate repairs/capex.

Two buildings of similar size and condition can be renting for very different amounts and have similar CAPEX needs. This can become a pretty big issue on some the Class C and below properties.

I would try and cross reference your percentages with the estimated remaining life of some of the major components of the property.

[Blake B.]

What areas are of interest to you?