How much to set aside for Cap Ex, Vacancy, Repairs, etc.

[Douglas Curtiss]

After doing mostly fix/flips, foreclosures, tax liens, I'm looking to buy my first buy and hold rental.  I've been running the numbers and typically use 5% for Cap Ex, Vacancy, and repairs, which I think are the numbers that @Brandon Turner uses on most webinars. Recently however,  I saw the Bigger Pockets video How to Analyze a Multi-Family Rental Property | Deal of the Day | Lewiston, Maine and in it, @Dave Meyer uses 10% for each.  I know it's probably just a matter of opinion, but it feels like you could never find a deal that cashflows enough to cover this much reserve and generate a profit.  So I'm wondering, what do most people set aside for these expenses?

[Nathan Gesner]

I should probably write a blog about this because it's a good question that is asked often. 

The answer is very personal. The vacancy rate in a B-class neighborhood in Cleveland can be very different than my local market in Cody, Wyoming or your market in Connecticut. Maintenance and capex will vary depending on the age/condition of the home, class of property, and quality of tenant. 

Other factors to consider:

• Your current income. If you earn $300,000 a year as a heart surgeon with average financial discipline, replacing a $10,000 roof will be easy. If you are a blue collar worker that lives paycheck-to-paycheck, a $10,000 roof could kill you.
• # of units. If you have one unit and the roof needs replacement, the rent won't cover it. If you have 100 units, you could take the cash from ten of them and pay for a roof that month.

The general rule-of-thumb is that you set aside 10% for each category. I recommend you follow that process until you have a better idea of your personal needs and tolerance. Then you can adjust up or down accordingly.