Deal Analysis References

[David M. Hagley, Jr.]

Is there a good reference book that shows the formulas and methods for analyzing real estate deals? I know that the calculators are on BP but I want to understand what goes into the analysis for various strategies. I'm not a fan of the "black box" type of analysis. I truly want to understand what the numbers mean.

[Tim Herman]

@David M. Hagley, Jr. Soft costs are an estimate of future expenses. Vacancy, repairs, and capex. You can estimate vacancy by what is common in your area. A 5% vacancy is your tenant staying for an average of 20 months. I use 8% or 1 month vacant out of 12. Repairs are service calls for the unit, painting, minor repairs. I like $50 per unit per month or 5% whatever is greater. Capex is easier defined as most major components have an average life span. There is a comprehensive spreadsheet for cap ex by @ sam tato in the files section. I use 10% in my analysis. There are no hard and fast rules. How about this scenario. A tenants dishwasher craps out and damages some flooring in the house. The repair of the flooring will come out of the repair budget but the replacement of the appliance will be out of the capex budget except you will have only a reserve account not 3 separate accounts. Another scenario, a tenant moves out and it has been 3 years and you paint the unit. The month that the unit is vacant comes out of the vacancy factor and the painting will come out repair budget. Just make sure you have a big reserve account.