How much do you budget for vacancy, repairs, etc?

Question

Newbie here getting ready to buy my first 2-flat. I plan to self manage. I’m curious for my model what people budget on average annually for vacancy, repairs, upkeep, etc?

Tracy Minick · Answer

I like to set aside 10%! If you don’t need it then use it for your next down payment!

John Underwood · Answer

I personally don't set anything "aside" I have enough rentals now that I can pay for a roof or an AC without it hurting from monthly income.

That said I would try and build up an emergency fund of 5k to 10k in an emergency repair account.

Nathan Gesner · Answer

There are many different answers. READ THIS for a general guide. Adjust accordingly to suit your personal situation.

Tim Herman · Answer

@Josh Shneyderov it depends if you are in year 20 of 25 year roof, you have to have enough CAPEX to pay for the roof. $7500/5/12=$125 per month. You need to estimate where you are in the replacement cycle. One of the posts someone had a spreadsheet with the major components listed and timelines. I should have grabbed it. In my calculations I use 8% vacancy, 5% repairs and I like around $250 a month for CAPEX. Good luck

James Mc Ree · Answer

I model replacement of each system/appliance within a 15 year hold period (my timeframe).  I don't try to build that into a monthly cost, but rather spread it out over the 15 years.  I also add $1,000 for minor repairs.  I have 3BR townhomes.

I charge myself 75% of 1 month's rent per year for vacancy.  This is pretty conservative as it presumes turnover 1-2 years.  I have done better than that rate, but it helps to avoid disappointment.  You will also pay a realtor 1 month rent commission if you rent via a realtor.

The 50% rule is a very broad assumption that assumes you know nothing about the property.  You can usually get a better estimate if you know what the property has and can get a feel for expense timing if you know the age and condition of the systems.  That is why I prefer a line-item approach.

Your model should show you the cost of tenant turnover: commission + vacancy + repairs + utilities + maintenance (lawn/ice).  This helps when you are trying to decide to raise the rent at risk of losing the tenant or when to evict.

How much do you budget for vacancy, repairs, etc?

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