Help with understanding Cap Ex, Repair Costs, and Vacancy Rate

[Sean MIddleton]

I am in the analysis paralysis stage of learning before starting to invest in real estate. As I am running these numbers I feel like its a complete guessing game for the Cap Ex, Repair Cost, and Vacancy rate percentages. I have been running all of these at 10% each to ensure I don't get burned. However, this seems overly conservative and makes a huge difference in the over all ROI numbers. It seems really tough to find any deals that make sense running the number at 10% across the board for these. Does anyone have any set methods or systems in place for calculating these percentages? Any help would be much appreciated.

[Tim Herman]

@Sean MIddleton My bare minimum is $230 per month for vacancy, repairs and capex. You should do an analysis.  Vacancy, you can call a property manager and ask what it runs in the area. I always pad a little incase of evictions. Most lenders assume 5% vacancy. That is you base. 5/100=1/20. So 1 turnover every 20 months. In a 10 year span you will have 120/20 or 6 turnovers. Assume you have to evict once every 10 years and it takes you 3 months to get them out. 6 turnover + 3 months no rent= 9/120 months= 7.5%. I use 8% myself. 

You do a repair budget just like the vacancy. Cost to do a turnover( new paint + deep cleaning). Assume every 3 years. Cost $1500. Now assume you have 1 repair(clogged toillet, leaky faucet, burner not working, etc) per year. Assume $150 per repair. In 3 years you will spend $1500+$450=$1950/36 months=$54 per month. Bare minimum for me is $50 per unit.

Now onto capex budget. Go to your favorite flooring store and ask what the commercial warranty is. Most will be 10 years so that is your life span. My area it is $6 sf to repalce. Assume 1500 sf of flooring. $9000/120 months=$75 per month for 1 item. Still have roof, appliances, hvac, hot water heater, etc to add. Bare minimum for me is $100 per month. Their is a comprehensive capex budget in the files section of BP. Called cap ex by @ Sam Tato.