Los Angeles, CA · Member since 2015 · 197 posts · 59 votes
I've started trying to value multifamily deals, but having some difficulty knowing what is reasonable to estimate for maintenance (i.e. repairs and capital expenses).
Does anyone in the LA area have a general "rule of thumb" for estimating maintenance costs, at least for the initial evaluation stage? Is there a certain percentage of the rent? Flat dollar value per door?
I would like to have a conservative estimate, but want to avoid being so conservative that I make every deal look like a loser. Any advice is greatly appreciated.
I've started trying to value multifamily deals, but having some difficulty knowing what is reasonable to estimate for maintenance (i.e. repairs and capital expenses).
Does anyone in the LA area have a general "rule of thumb" for estimating maintenance costs, at least for the initial evaluation stage? Is there a certain percentage of the rent? Flat dollar value per door?
I would like to have a conservative estimate, but want to avoid being so conservative that I make every deal look like a loser. Any advice is greatly appreciated.
David,
Here's what I do for my multi-family buyers:
Yes it is hard to estimate for maintenance because of a lot of variables
But I know its expense is less for more units, for things like 16+ unit buildings, onsite maintenance room for storage materials, onsite employees use less hours to do work orders
Some entities even volunteer their residents to pick up grounds, hence minimizing your maintenance costs
If hdsupply.com accepts your account they specialize in multi-family buildings and you don't have to use man power for delivery or pickups
And yes, you can do analysis paralysis but it might help you the bank's formula DCR
The 1031 buyers look at expenses differently
Yes there's a number per door, e.g. if the units have been neglected you will spend at least one month's rent in turn ready unit expense
An organized well lubricated team should turn ready units in 2-3 days
Pay close attention to the human factor, i.e. low self-esteem employees who will take longer to turn ready units or do work orders with poorly workmanship, theft, etc
In capital expenses, concentrate in a few and more expensive to start with, AC, plumbing, electrical
Rental Property Investor · Muncie IN · Member since 2015 · 68 posts · 25 votes
10y
I am investing in the Midwest but have done a lot of research on this subject. From what I have researched maintenance expense needs to be 5-10% of gross rents. CapEx should be 10-20% of the gross rents with minimum of $100 month. In CA you should not have to worry about the minimum for CapEx. I know there are far more experienced investors on BP I will be interested to see what they have to say.
I've started trying to value multifamily deals, but having some difficulty knowing what is reasonable to estimate for maintenance (i.e. repairs and capital expenses).
Does anyone in the LA area have a general "rule of thumb" for estimating maintenance costs, at least for the initial evaluation stage? Is there a certain percentage of the rent? Flat dollar value per door?
I would like to have a conservative estimate, but want to avoid being so conservative that I make every deal look like a loser. Any advice is greatly appreciated.
David,
Here's what I do for my multi-family buyers:
Yes it is hard to estimate for maintenance because of a lot of variables
But I know its expense is less for more units, for things like 16+ unit buildings, onsite maintenance room for storage materials, onsite employees use less hours to do work orders
Some entities even volunteer their residents to pick up grounds, hence minimizing your maintenance costs
If hdsupply.com accepts your account they specialize in multi-family buildings and you don't have to use man power for delivery or pickups
And yes, you can do analysis paralysis but it might help you the bank's formula DCR
The 1031 buyers look at expenses differently
Yes there's a number per door, e.g. if the units have been neglected you will spend at least one month's rent in turn ready unit expense
An organized well lubricated team should turn ready units in 2-3 days
Pay close attention to the human factor, i.e. low self-esteem employees who will take longer to turn ready units or do work orders with poorly workmanship, theft, etc
In capital expenses, concentrate in a few and more expensive to start with, AC, plumbing, electrical
Real Estate Agent and Investor · Los Angeles, CA · Member since 2015 · 52 posts · 20 votes
10y
There is no practical rule of thumb to estimate maintenance. Obviously an older property with deferred maintenance would have more need of repairs than a turnkey, but then some newer appliances break faster than older ones. The current owners should give you their p&l, which includes repairs they have done. Request the "official" version, from their accountant, which is filed with their tax return.
Other than that, a good property inspector should point you in the right direction as far as what areas could give you problems and what capital improvements you should make to avoid things breaking up later. Pay particular attention to roof, AC, plumbing and the electrical.
Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
10y
Repairs / Reserves are typically 10% of the purchase price and Vacancies are at 12%.
The DSCR formual is NOI+discounts / Annual Mortage and must be at least 1.1, but many now require 1.3 or 1/4. Notice, discounts are the items listed on line(1) above, so the factors are:
need high GSI,
low expenses
and a historic low vacancies (ie you can beat the Vacancy rate)
However, learn the Class {A,B,C} rating system and then be sure to buy A or B properties in growing communities and neighborhoods.
Los Angeles, CA · Member since 2015 · 197 posts · 59 votes
10y
Thank you @Raul Pelcastre@Roger Pokorny@Josie Roman and @Jeff B., are there actually certain requirements for a property to fit into a certain "class" or is it more just by feel about the property as a whole? Are there any resources about that you might recommend.