New investor just looking for a few questions to be answered.

[Shane Brown]

Hey guys, I am a new investor from Vermont still trying to find my first deal. I am interested in buy and hold investing and found a property that might be a good deal if I can get the seller to drop down the price some. The property I am looking at is a triplex and I would live in one unit for the lower down payment. I just have a few questions to help me with running the numbers on a property. 1. After I figure out all expenses how much should I set aside for cap ex? I see a lot of people saying 15% of monthly gross rental income. 2. How much should I set aside for vacancy? I also see people saying 15% but this seems like a lot of money, do most people need this much set aside for all rental homes? 3. How much for basic repairs such as repainting and carpet replacements? Another 15%? 4. What is a good cash flow on property like this to start, after putting everything aside if the property cash flowed 200 a month do you think it is worth it? Thanks for any help!

[Mike Warder]

Contact a Property Manager in the area to ask about vacancy rates. While you have them on the phone, ask their opinion of the property. They’ll be able to give you a sense of the types of tenants you’ll be seeing.

Capex really depends on a lot of factors, such as when the property was built, and when major items (roof, HVAC, etc) were installed or last overhauled. I wouldn’t buy a property without knowing those things. If the roof and HVAC are on it’s last legs, 15% for capex probably won’t save that deal.

Repairs are also often dependent on the year the home was built. The older the house, the more repairs likely needed. They also depend on the class of tenant you have. Higher class tenants tend to take better care of their property and often handle many repairs on their own. Again, the PM should help confirm all of this for you.

It’s also hard to assign a % for repairs and capex without knowing the value of the property. As a percentage, repairs and capex for a $500k property will be much less than for a $200k property. E.g., replacing a toilet should cost roughly the same in each of those properties. As a result, the repairs as a percentage would be much less for the more expensive property. What’s the property worth?