What Percentages do you use for your expenses?

Question

Hey guys and girls,

So when using rental property calculators what % do use for the expenses and growth monthly?

I’ve been using

5% vacancy

10% repair costs

5% CapEx

10% management fees

I assume all utilities will be handled by the tenants. I use the following for yearly expenses and budgeting

3% annual Rent increase

3.5% annual home appreciation

2% annual repair cost increase

And I close it out with a final 9% sale/closing cost for when that time comes.

So any numbers exaggerated or understated here? Any help or advice is greatly appreciated!

Michinori Kaneko · Answer

@Jim Chesmore CapEx is capital expenditures.  it's big ticket repair items like Roofs or windows, etc.

Michinori Kaneko · Answer

Account Closed

you should talk to local brokers to see what the local markets are like.  For instance I asked multiple brokers what kind of vacancies I should anticipate in the market i'm investing in, and they all told me 1 month is more than enough, so i use 1 month (8.33%).  Management Fee - you should decide which management company you want to use and use their actual quotes.  Each management company has different pricing model (make sure you capture the tenant replacement fees, if the PM is charging for that). For annual appreciation, you can talk to brokers also, or some websites like this will provide some general stats for you.  I think either zillow or realtor.com has average appreciation in your zip as well....? For repairs and CapEx, it would materially differ by what your rent will be.  For instance, a really nice home renting for $2000 you probably won't need to save as much as one renting for $500 because the price of maintaining/repairing a home doesn't differ THAT much (roof is still a roof, maybe if its larger home it'll cost a bit more).  i don't see the benefit in splitting out repairs/capex so i lump them into one bucket. i use 1 month (8.33%) for my analysis as well, but the home i recently purchased just replaced the roof and HVAC 2 years ago, so I'm not expecting a large CapEx anytimes soon.

You also want to incorporate tax and insurance if you haven't included those in your models.

Hope that helps.

Doug Shapiro · Answer

Hi Account Closed,

Your CapEx may be a little low. This number varies significantly from condo to multi-unit home.  For single family home I typically use 10%, and for condo I use 2% (in case there is a special assessment). Everything else looks good to me.

Sam Shueh · Answer

Besides cap rate being low, the repair cost depends on the condition of the home. Frankly, after you have it renovated 10% repair will eventually putting landlord out of business. It should remain to be low or very low.

Insurance- You should include landlord liability or an umbrella policy. Chk with City housing if there is rental control. MF appreciation rate is slightly lower than SFHs.  If the appreciation is indeed just 3.5% I will focus on high cash flow as it is close to inflation.

Jim C. · Answer

Thanks

Jim C. · Answer

What is CapEx?

Alexander Felice · Answer

estimate conservative when you're new, use real figures as you acquire.

I basically started with

8% vacancy

10% PM

5% capex

10% maintenance

+ T&I

came out to a little over 50% expense ratio.

in reality though I run closer to a 43% expense ratio, and every year will be different so you gotta keep a rolling average.

Also, few markets are going to yield a consistent 3% annual rent increase, and fewer are going to yield a 3.5% annual appreciation IMO so don't rely on any of your profit to come from that. Just in case.

9%  for transactional cost is accurate

What Percentages do you use for your expenses?

Most Popular Reply