Capital Expenditures/Maintenance in Baltimore

[Brad Fallon]

Hello BP, 

I'm in the process of assessing deals in southeast Baltimore (Butchers Hill, Upper Fells, Highlandtown, etc) and can't seem to make any of my numbers work. My variable expenses (CapEx, maintenance, vacancy, property management) are consistently hovering at around $750/month. I have gotten to that number by setting side 10% for CapEx, 10% for maintenance, 8% for vacancy, and 10% for property management. For a 3 bedroom 2 bath for rent at $2,000 Upper Fells, that breaks down to $200 for CapEx, $200 for maintenance, $160 for vacancy, and $200 for property management.

My question is whether anyone thinks I'm setting aside too much each month for CapEx and maintenance? I'm hesitant to cut down but don;t want to drive away potential deals becaise I'm overestimating my costs.

Thanks for any advice!

Brad

[Seth Hochberg]

If something can hit the 1% rule, then it should be working. I use the 1% rule as my primary filter. If it's not close to 1%, I skip it, otherwise, I plug in the numbers into my spreadsheet. 

2k rent for 3/2 in Upper Fells is reasonable, you just have to find a home around 200k or less. 10% for repairs AND 10% for capex is high. Typically, you go with 5% for both. You're putting an extra 10% in those buckets and that's most of your profit margin right there.