vacany rate: how do find an accurate estimate

[Dean Suzuki]

Hi

I am working on my first multi-unit deal, a four-plex, in Phoenix built in 1962. All units are 2bedrooms/1 bath. I am wondering how to estimate the vacancy rate and maintenance amount in doing a cash flow analysis.

I have done SFH deals, but I had heard to assume a vacancy higher rate for multi-units. I am wondering if the maintenance would be higher.

Any suggestions and advice are greatly appreciated.

[Joel Owens]

Use 50% of gross expected rents. If landlord pays water, etc. use 60% of gross expected rents.

In this number you have vacancy, property management, and averaging of ongoing operating expenses.

You DO NOT include immediate capex issues. So for example if an inspection shows a new roof is needed today at a cost of 10,0000 (not in 2,3,4,5 years etc.) then you would deduct off of the purchase price.

Let's say each unit gets 1,000 a month and you have verified that is mid-range or lower market rent for the area.

You would go 1,000 X 4 = 4,000 month X 12 = 48,000 a year gross expected

48,000 GOI X .50 costs = 24,000 NOI at a 10 cap is 240,000 purchase price or 60,000 a door per 1,000 in rent.

Now if landlord pays big utility like water etc. ( not trash) then you go to 60% costs.

48,000 GOI X .40 (60% costs) = 19,200 NOI or 10 cap is 192,000 purchase price. Hope it helps.