Q about Repairs/Maintenance and Vacancy Rate when evaluating

[Joe Koppel]

I'm considering buying some turn key rentals in KC MO. When crunching the numbers is it important to also factor in repairs/maintenance and vacancy in your evaluation?

These are "what ifs" right that may or may not happen?

If you do factor it in what is a good percentage to use for these two different categories?

[Clayton Mobley]

@Joe Koppel Are you purchasing TK properties from an agent (and you'll either manage them or hire a PM) or through a full service TK provider (who does all the rehabbing, tenanting, management etc)? If it is the latter, then the provider should be able to show you data regarding all their costs and expenses based on historical rates. The 10% rules are good back-of-the napkin numbers if you don't have real data, but any TK provider worth your time will have actual numbers for you to look at based on their portfolio performance. A good TK provider should be showing maintenance and vacancy numbers well under 10% - these numbers reflect the quality of the location, rehab work, tenant selection, and general management, so you should be inquiring about the actual figures to ensure you can accurately gauge the quality of the provider.

You should also incorporate numbers for insurance and taxes, as well as your mortgage payments, of course. Again, you should be able to get actual data from any good TK provider so that you know you're running accurate numbers. You can look up tax costs online for most markets, and run your potential mortgage payments using many online calculators.

With regard to 'what ifs', @Jim Adrian is correct that if these are truly turnkey properties you shouldn't have too much to worry about up front. HOWEVER, you should always have a good emergency CAPEX fund as a buffer, just in case. We usually tell clients that it's a good idea to have $5-7k in reserves for the first prop and then about $3k for each additional. The odds are you won't need to dive into that for years, but the peace of mind it brings to have a safety net cannot be overstated.

Regardless of whether you're going with an agent or an actual TK provider, I'd recommend that you request a comprehensive list of what the rehab process included. Did they simply clean the carpet and give it a coat of new paint, or did they actually put in the work to give the prop a new roof, new HVAC, new flooring, etc? If it's a new build, of course, some of that is moot. If it's an older property, though, you really need to know the age and lifespan of the bigger CAPEX items.

Sorry for the ramble - I just think it's important to look at the big picture behind the numbers when analyzing a potential investment. There are a lot of investment 'rules' that get thrown around a lot, and these can be useful for at-a-glance analysis, but when you get into the nitty gritty of a potential investment, you need to know why the numbers are what they are and what the potential future changes might be.

Anyway, best of luck!

Clayton