New investor looking for advise on how much money to set aside

[Shane Brown]

Hey guys, I am a new investor from Vermont still trying to find my first deal. I am interested in buy and hold investing and found a property that might be a good deal if I can get the seller to drop down the price some. The property I am looking at is a triplex and I would live in one unit for the lower down payment. I just have a few questions to help me with running the numbers on a property. 1. After I figure out all expenses how much should I set aside for cap ex? I see a lot of people saying 15% of monthly gross rental income. 2. How much should I set aside for vacancy? I also see people saying 15% but this seems like a lot of money, do most people need this much set aside for all rental homes? 3. How much for basic repairs such as repainting and carpet replacements? Another 15%? 4. What is a good cash flow on property like this to start, after putting everything aside if the property cash flowed 200 a month do you think it is worth it? Thanks for any help!

[John Leavelle]

Howdy @Shane Brown

1. I haven't seen 15% for CapEx. I start with 10% until I have the property inspected. I want to determine the current condition and life expectancy of all major components and appliances. That way I know what to include in the immediate Rehab estimate and what my CapEx reserves requirement needs to be.

2.  Again most investors use 10% Vacancy for initial analysis.  I use 8.34% (one months rent).

3.  5% is common for Maintenance reserves.  This will be dependent on the current condition of the property, quality of tenants, and frequency of of turnovers.

4.  Cash Flow is a personal preference.  Some want $100 per unit, others want $200 per unit, and some are ok with $50 per unit.  You must establish your own minimum cash flow criteria.

Since you are considering using the House Hack strategy make sure you conduct your cash flow analysis initially as if the property is fully rented.  If it passes your Cash Flow criteria at that point do a second analysis with you living in one unit to see the difference. It is typical to have negative Cash Flow while you live in one unit.

Hope this helps.