How to calculate maintenance expenses for BRRRR

Question

How are y’all calculating your projected maintenance expenses for BRRRR properties?

I know the rule of thumb for a traditional rental is 40-50% all in expenses (vacancy, prop mgmt, taxes, ins, repairs, CapEx, etc)..

But are y’all using a lower maintenance/repair rate due to the fact that the property was recently rehabbed? If so, what all in expense number are you using for calculations?

James Alderman · Answer

@Steven Barr I'll use 10% for capex and 10% for repairs when I'm looking at properties. Again, those numbers may be reduced depending on the property, but as a starting point I prefer these conservative numbers.

Ron Brady · Answer

Like @James Alderman, we use 10% of rental income across our portfolio.  Though we BRRRR, we purchase used appliances and keep existing roofs, furnaces, water heaters etc. unless they are clearly end of life. Across our portfolio, to date, we've needed this 10% to make minor and major repairs/replacements.

James Alderman · Answer

I use 10% of the max market rate for a worst-case scenario. Depends on the age of the house as well. I just fixed up a great home built in 2006, and I'd use a 5% there. For another that was built pre-1900, I'd leave it at 10% even after fixing up.

Ron Brady · Answer

@Steven Barr Started with 10% for maintenance and 10% for capex.  It has proven necessary for us to use this. Note that our BRRRRs have been on homes built in 1905 and thus we know we have older housing stock with which we're working.  This said, I just looked at my spreadsheets again and we've recently reduced this 10% each to 8% each as we now have 7 units in our portfolio, reducing the risk for any given property and thus the slightly lower amount. Finally, I will readily admit that these are conservative numbers, but that is how we've preferred to plan. Hope that helps.

Tim Herman · Answer

@Steven Barr You need to do a maintenance budget. What is the cost to do a turnover. What repairs will be done(clogged toilet, burner not working, hvac service, etc). An example: a minor turnover(touch up paint, cleaner, etc) cost you $500. A major turnover costs $1500 ( repaint the unit, deep cleaning, landscape. etc). I budget 1 repair per year.

If you turnover every 2 years and do a major every 6 years. 2 turnover @ $500 and 1 major at$1500. Add 1 repair @ $150 per repair for 6 years. $1000+$1500+$900= $3400/ 72 months=$47 per month. Modify to fit your own costs and turnover times.

Steven Barr · Answer

@Ron Brady and @James Alderman is 10% what you are using for maintenance/repairs AND capex? Or just maintenance and repairs?

I plan to sell these properties within a few years after BRRRRing them, so not sure I should really be modeling capex, as those items will be addressed in the rehab? Curious to hear your thoughts on that

How to calculate maintenance expenses for BRRRR

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