Good ways to estimate expenses and rent

[Evan Hamamoto]

Hello BiggerPockets!

I am a 23 year old looking to buy my first duplex for a house hack in Columbus, OH. I understand the different expenses and revenue involved in real estate, but I am not sure how to get good estimates to use for analyzing deals. Here's what I've found so far:

Rent: Utilize fair market rent numbers, rentometer.com, check local listings

Closing costs: 2% of the purchase price?

Insurance: talk to an insurance agent

Taxes: 1.48% for Columbus according to Franklin County website

Capital Expenditures: 10% of rent

Repairs and maintenance: 5% of rent

Property Management: 0% since I will be self-managing

Vacancy: 5% (that's about 18 days per year)

Utilities: Tenants pay for electricity, gas, and water

HOA: depends on the property

Are there any expenses I am missing?

Also, are these reasonable estimates?

[Ed W.]

@Evan Hamamoto

Sound business logic requires that what you pay for a business or rental property be based not only on income, but on a good sense of the expenses of the business.  While real estate can sometimes escape that reality (for example, some rental properties can be sold to owner occupants - who don't care about costs in the same way investors do - instead of other business people - and in 2021 that is far more true than in any time that I can recall), if you pay full retail, you're in bad shape facing an uphill battle before you even get up from the closing table.  You make a lot of your money in this business and establish the constraints or flexibility you have when you buy (the price you pay, the terms you establish, etc.) and those decisions and constraints or freedoms can have a huge impact on your wallet and the quality of your business life.  

You are more inclined to pay higher dollars for property if you underestimate the expenses which will VERY rarely be under 40%. In blue collar areas, expenses approaching 50% was not uncommon in years past.  Even with rents being proportionally higher than expenses today, I'd still use 40% as the lowest percentage likely to be incurred (and that's not considering either the problems of covid rent moratoria or the general increased difficulty of evictions or the greater activism surrounding renter protections, all of which raises costs and/or lowers income).  Your newness will also make it more likely that your mistakes will raise your expenses somewhat.  And don't forget, the purchase price of the property will likely impact what your taxes will be going forward.  The current taxes are highly likely lower than your taxes will be in the future.

BTW, to say that you will be managing and, therefore you have no cost of management is not even remotely realistic unless you are worthless.  If you don't value your time, no one else will and, BTW2, if you get ill (or discover that you cannot manage effectively) you will likely be paying 8 - 10% for management and, in your lack of experience, you may end up paying considerably more than that with "hidden costs" that some management companies impose.  

Many (not all) real estate agents minimize costs to buyers.  The agents may do so out ignorance or greed to help promote a sale and often suggest overall costs will be around 30% or so.  Hogwash.  Get an APOD form (annual property operating data) and carefully complete it.  It will help open your eyes.  They are abundant on the internet.  Get several so you can be reasonably certain to get all the costs to consider.