Rental property Calculations for newer investors

[Stephen Rager]

I'm finding myself running a minimum of two calculations per property when figuring the monthly cash flow. The reason is if you calculate using CapEx, Vacancy Rate, Repairs which are subjective(not actual) they affect the monthly cash flow. I'm holding money aside already in a fund to cover these potential expenses, maybe I'm holding too much, that could be used to purchase additional properties.

So for example, if I have $10,000 in an account to cover these, they will need to be replenished at some point.  But, initially, they won't so this affects the actual cash flow per month.

Also, is there a percentage of the properties value you recommend to have an account to fund these expenses.  For example, if I left $50,000 in an account to cover Cap-Ex, Vacancy Rate, Repairs, and I have 5 $50,000 properties.  Do I stop adding to it? Or at what point would you stop adding to the expense funding account.

It's going to be needed one day, you just can't predict the specific day.  So it makes sense to hold a percentage of liquid cash to cover the expense. 

Any articles, podcasts, books videos or links would be a great help as well. TIA ~ Stephen Rager

[Randall Alan]

We have upwards of 40 rentals and this topic also came up.   We took this approach...  if you plan on being in real estate long term, you can assume across 20 years you are going to need at least one roof and one AC replacement per property.  In our area a typical roof is $10k, and an AC is $4,000.  There are of course numerous other repairs that come along... but those two are “the big ones”.  If you divide $14,000 by 240 month you get about $59 per month over time that you need just for those two items.  

This should start to help you formulate a number for capex reserves needed. We personally budget $125 per month on SFH and $100/unit multi family properties for repairs across our properties (over $3,000 per month). So far it's worked out pretty well to cover things. My suggestion is to base your plan on a formula and adjust the formula as you gain experience history of expenses.