using the rental calculator

[Arthur Fuller II]

I have not made my 1st deal yet - that being the case I have a question about the wholesaling calculator (to sell to a renting investor) and the renting calculator.

If I have never rented or flipped a rental how do I know what numbers to put into the calculator?

Cap rate?

Vacancy rate? 

repair and maintenance?

cap ex?

income increase?

expense increase?

[Nick Baldo]

@Arthur Fuller II,

These are allow assumptions. Each investor will differ as to what they would want to see with these figures. You don't know what these numbers will actually be, so you need to take a conservative guess to ensure your end-buyer that the deal is sound. If I were your cash buyer, here is what I would want to see:

Cap Rate - 10% or higher. This is very market-specific. Some markets demand higher cap rates than others. If I were looking at a deal in the suburbs of Buffalo, NY, I wouldn't look at anything lower than this. You need to do some research here. Each market (and sub-market for that matter) has its own market acceptable cap rate. The Cap Rate is defined as the Annual Rate of Return at which investors are willing to deploy capital. It is calculated by dividing the Annual Net Operating Income (NOI) by the purchase price. I would get in touch with some solid commercial real estate agents in your area to find out what cap rates investors are striving for. Investors who are purchasing with financing (which is most), would probably desire a higher cap rate than those buying with cash (Debt Service eats into cash flow)

Vacancy Rate - 5% of total rent. This is an industry standard assumption.

Repair and Maintenance - 5% of total rent. Again, in my experience, this is an industry standard assumption

Cap EX - 3%-5% of total rent. This depends on the condition of the property. A brand new property with new mechanicals and a new roof will require less capital improvements than a 100 year-old building. Use your judgement based on the condition of the property

Income Increase - As an end buyer, I would want to see this at 0. I am assuming I will gradually be able to increase my revenue. However, as you will see with the next point, expenses will gradually increase as well. If I'm looking at an investment, I stay conservative and assume rents will remain the same forever. If the deal is still good, eventual income increases will only serve me better in the future 

Expense Increase - Same as above. Both these numbers will change...but at the time of purchase I assume they stay the same. Investors may differ on this one. If you think there are specific reasons why income/ expenses will change...put something in here. 

Hope this helps. Let me know if you have any other questions !