Modeling expenses & capex, best ways to estimate?

[Neil Quinn]

Hi all,

I'm looking at buying a primary residence with a goal of renting it out when I leave the area.  This is a high COL area though (DC/NoVA), so trying to get a rough sense of how much negative cashflow I'd have when I leave.

Vacancies, prop management, insurance, etc are all pretty easy to estimate, but I have no idea how to properly estimate capex.

For example, let's take a theoretical older property:

PITI:  $400k condo @ 5.75% interest rate, 20% down. $150 HOA fee.

Assuming 1% property tax, $800/year insurance, no PMI = $2417 per month

Income: Expected rent of $2200 ($26.4k per year)

Expenses:

- 8% vacancy (-$2112)

- 8% prop management (-$2112)

- How much for capex/maintenance? A $3500 hvac unit over 20 years is only $175 per year. Roof would be covered by HOA. Dishwasher/refrigerator/washer/dryer is maybe another $175 per year. Misc small repairs of $500 per year? That puts capex+maintenance at $850, which is a lot smaller than the 50% rule which in this case would be $1200. (-$500)

- Maybe $1k per year in marketing/legal fees (-$1000)

Total delta would be $26400 - $2417*12(PITI) - $2112 - $2112 - $500 - $1000 ~ -$8k per year, not accounting for any depreciation benefits.

Does this look in the ballpark of what I'd expect?  Go higher or lower on capex/maintenance?

[Ray Johnson]

@Neil Quinn I own several properties in Washington, DC. you're numbers are very low on several items

1) property taxes are going to be higher

2) What area are you looking at for a property? The HOA fees will vary, As long as you stay away from the high-rise condo projects you can stay fairly low, however $150 is too low for any of the nicer areas of DC

3) Also if you're paying $400K for the condo, Are you in Northeast, DC or is this a 1 bedroom in Northwest DC. If you're looking in Southeast or Southwest DC, vet the HOA's as many are very delinquent which don't allow for financing causing them to basically be apartment building owned by individual investors.

4) I would advise looking in an area of Northeast DC that sits up against Northwest DC as that area has better growth potential without the risk associated with SE and SW

5) Your Cap number can be smaller if you get a rehabbed condo as items like Dishwasher, Refrigerator, Stove, Washer & Dryer will all be new like the condos I do. Cap-Ex will be geared towards HVAC as it is not included in the HOA, and some Misc repairs.

6) To minimize your vacancy, try to be near one of the Metro lines for commuting purposes

7) Also on the Rent, You can get $2,200 in NW, but finding a $400K condo with a low HOA will be hard since the investor price point for the NW neighborhood with low HOA's start around the $450K, The closer you are to the Metro the higher the prices are going to be.