The 76% rule

[Jeff S.]

Just wanting to point out the importance of analyzing repair costs before buying for a buy and hold. Assuming 50% expenses and spending the rest on PITI can get you in trouble.

In the last 5 yrs my duplex has averaged over 76% in expenses per yr including capital improvements. Nothing unusual, just the regular stuff.

Say you bought a building with a roof that was passable. That winter a windstorm took part of it off. Mine was 30 yrs old so time for a redo. With some dryrot and a large building, $12,000.

So maybe the paint isn't great but nothing immediate. Couple yrs and it is peeling. My building has lead paint and with fines for not using lead certified painters upwards of 30k the paint job tops 6k.

A little dryrot in my bathroom turns into a major job and with a licensed and bonded contractor, 4k+.

Add a few odds and ends and it adds up.

While the 50% rule holds up, don't use that instead of some good estimating and planning upfront.

I have owned this building for 20 yrs. For that time the expenses have averaged 50.1%. With all the repairs I've done I expect the overall to drop below 50% eventually.