Ratio between property price and Expenses

[Chaim Zigelman]

Hi All,

I am doing an analysis on a property. The property is worth between $360k-$430k. They want $480k.

I am trying to calculate repair expenses. They are saying that repairs are $1000 a year. I do not believe that the case especially on a property that is almost 90 years old. Anyway! My question is this:

On a property that sells for $430,000 and rents for 45k a year, am I really going to be spending $4500 on repairs/maintenance on a yearly basis? I understand that you never know when a roof or a furnace or other such CapEx will occur. Is this number more for me to make sure I put it aside for that event? Or am I really going to be spending $375 a month on repairs/maintenance?

Considering his $1000 statement (I will need to verify) against my $4,500, it really throws the numbers into whack. 

[Brian Karlow]

Hey Chaim

Repairs/Maintenance are accounted separate from the CapEx allocations when I underwrite....not sure if you were combining the two or if I may have misunderstood your statement.

Anyhow...the reality is the Maintenance/Repair percentage is more than likely somewhere in the middle of the Seller's reported 2% and your projected 10%, but as Brie stated, it really depends on the condition of the property, how diligent maintenance repairs have been performed and the quality of the tenants in the building.

Good luck!

Brian