Setting up my cash analysis numbers for Indy--thoughs

[Ronn Johnstone]

I'm setting up my expense spreadsheet "run the numbers" on the properties I'm  considering. I've notice that different regions use different number (and I should imagine different types of properties should as well). So I was hoping for thoughts and input.

My expenses are as follows

Property Tax

Insurance

Utilities ( -occupant paid)

Maintenance 10%

Misc. Expenses

Management 10%

landscaping

listing/legal expenses 2%

Capex 5%

Vacancy 10%

Trash/sewer

What think you of my %?

I often see vacancy set at 4% in major markets, but have likewise seen advice that 10% is more appropriate for indy. Should I use an occupancy map (know a good one?) and adjust % based on the area? I'm not a low-end neighborhood kind of investor (Irvington, Beech Grove, edges of FS and on up to Kessler-meridian, BR, etc.). SO I don't need war-zone rates ;-)

Also, is there any site I can use to get proforma info on insurance and the likes? Why get into asking about a property if even the proforma numbers aren't working. 

Should a new rehab rehab be 5% maintenance and capex, and the further you move out from "recent" the higher the % goes? do you have any guide/rule of thumb you use?

Thanks for your thoughts!

Ronn

[Ross Denman]

@Ronn Johnstone I think that your percentages look fair. I believe in making a deal as conservative and stringent as possible. The areas that you mentioned are good areas, but they are also 80-100 year old homes so maintenance can be a recurring issue. I've seen full rehabs bleed for 6-12 months if the home has sat vacant through a couple of winters. The most frequent one that I've seen is drainage/sewer problems out of those homes. Typically if "everything" is new, you shouldn't have problems (and hopefully any issues will be warrantied), but drainage doesn't usually get addressed unless there is an identifiable problem. Unfortunately, you don't usually don't identify it until someone starts utilizing the systems again. I've also seen a lot of people who rehab a home and don't replace the furnace because it kicks on the first time they use it. Once again, I don't usually recommend replacing a functioning furnace, but plan on it needing replaced at some point... even if it's 2 weeks into the first tenancy.

Other problems that you find in those homes and areas are foundation issues. Most of these are block foundations that have settled and have a lot of pressure on the outside of the basements... especially if the home has not had the exterior drainage systems cared for. This tends to lead to mold, rotting floor joists/sill plates, and other moisture based damages and problems. If you have a tenant complaining about mold and sewage in the basement, your maintenance will be kind of expensive that first year and you may even lose a tenant.

It really depends on what your "full rehab" includes. Are you replacing a roof that still has 5+ years left? HVAC functions when you turn it on? Drains that seem to be ok when you run a couple of faucets for a few minutes? Foundation work when the home passes an inspection? Upgrading Electrical? Upgrading plumbing? Are you replacing the plaster with drywall, repairing the plaster, or using it as is? Are you repairing warped or soft sub-floor? Upgrading/refurbing windows? (Irvington Historical Society will not allow vinyl windows.)

I've seen many people do a "full rehab" and utilize some functional parts of the home that ended up failing relatively quickly. Always plan for the worst when doing your deal analysis.