Questions re: the 2% rule locally, + estimating maintenance costs

[Kellan P.]

This community has been great so far. I've been making my way through the podcasts/forums/other resources, and have been learning a lot. I have a few questions for the guys in London, Ontario about the 2% rule, as well as some other questions about estimating maintenance costs that would apply anywhere.

The 2% rule (more like 1% in London, Ontario?)

I've been scanning local listings, in a fairly specific area within 3km of Victoria Park, for multi-family properties to buy and hold. So far, it seems like the 2% rule seems relatively unattainable in our market. Is 1% a more realistic rule of thumb, or is there a number that you guys tend to use?

For example, a duplex listed for $250,000 often seems to rent for around $2000-$2500, which is between 0.8% and 1%. In fact, there are many properties being listed that barely cash flow as far as I can tell, depending on the accuracy of the utilities/insurance/maintenance/tax estimates I'm using.

I've analyzed around 25 properties so far (after filtering through many more) and ones worth considering usually cash flow between $150-$600. Am I way off, or does this seem about right? It looks like triplexes often cash flow a bit better, but they're more rare, especially in the price range I'm considering (between $200-$300k)

Estimating Maintenance Costs (Repairs + CapEx?)

I'm using 1% of the property value to estimate maintenance costs (repairs + CapEx), but I'm assuming there's a better way to calculate this. I've seen 5-10% of rent used to estimate repair costs, but CapEx is usually calculated separately.

When running the numbers on properties and calculating potential cash flow, do you include capital expenditures, or just smaller repairs? I assume it's important to include CapEx, otherwise it's not true cash flow because it's just money going back into the property.

Again, thanks for the help, and looking forward to our meetup soon!

Kellan

[Matt Geerts]

@Derek Allen

Again, sorry... how am I calculating income and expenses differently? Perhaps quote what I said and explain what's unclear so I know what you're asking.

@Kellan P.Yes, the goal will be $200 per unit in my upcoming houses. I have >$200 from my SFH investment, but I did not meet my 15% cash/cash goal because I invested too much cash to buy it.

When you figure out an avenue of low-priced off-market in London or surrounding area, I'd love to hear it. I have some ideas, but I don't want to send you down an untested path.

However, $200/dr and >15% CoC is achievable from MLS. You just need to find a realtor who is willing to pound pavement for you. I've got a guy if you want to PM me.