Appropriate Cap Ex, Repair/Maintenance, Vacancy Expense Estimates???

[Rick L.]

In the process of evaluating 6+ unit multifamily properties, I've come to the conclusion that these properties are either EXTREMELY over priced, or my estimates for expenses are too aggressive. In many cases, I'm able to attain the gross income, NOI, utility, tax, insurance and repairs/maintenance expenses from the seller. However, I prefer to use my own data for such items as: insurance, repairs/maintenance, capital ex, vacancy, property management, etc. Using Google search and speaking with local bankers/investors, I'm able to attain studies that provide the St. Louis market's average vacancy rates and Cap Rates. However, I'm really struggling to figure out a good number or range to use for Cap Ex and Repairs/Maintenance. I'm currently using 5% for Cap Ex, 10% for Repairs/Maintenance, Vacancy 7%, and Property Management 10% plus whatever tax and utility expenses are listed. Unfortunately, I'm beginning to doubt that these are appropriate estimates since most of the offer prices I determine to be fair, based on a Cap Rate of 8-10%, are primarily 30-50% lower than asking price.

What do you use for your Cap Ex, Repairs/Maintenance, and Vacancy expense estimates???

[James Syed]

@Rick L. Great question.

Here's what I prefer when evaluating a 4 unit or bigger apartment building.

1. Repair and Maintenance $600 per unit yearly

2. Vacancy Rate 10% (vacancy rate 5% uncollected funds 5%)

3. Cap. Expenditure $350 per unit yearly

4. Property Management 10%

The average expense ratio for a 4 unit or more property is 40% - 60%.

I assert your question will help others as well. I just sent you a colleague request as well.

Hope it helps.