All Forum Posts by: Amandeep Singh Bassi

@Amandeep Singh Bassi

It can highly depend on the condition of the property. I normally set aside 5-10% of monthly income. If you rehab the house first then rent it then you are looking at a lower cost but if you get somebody in there and it is a little rougher then I would say factor in a bit more. Don’t forget to factor in vacancy and cap ex as well.

 Depends on the condition of the properties, and how many.

Hi @Amandeep Singh Bassi, you should budget 5% of your rents to repairs, 5% for capital expenditures (large items like roof, water heater, furnace, etc), and 5% for vacancies.  

You might need to budget more or less depending on the age and condition of the property but generally speaking, that is a good starting point. 

Hi I personally allocate 5% of the monthly rent every month for day to day fixes and another 5% of the monthly rent every month for large capital expenses. So overall I allocate 10% of the monthly rent. Lets say monthly rent is $1000. I will allocate 1000*0.1*12= $1200 per year for repairs.

I still use Jay DeCima’s pro forma - 25% of gross overall. That comes 5% each in the buckets of loss of income, vacancy, repairs, maintenance, and management. I know 25% seems high, but if the numbers works with that, you usually have some good cash flow each month. 
- Dan 

Hey @Joe Villeneuve, I use a line of credit instead of a bank account also, but @Amandeep Singh Bassi was asking how much you set aside when analyzing a property.  Aman, I use 2 methods.  I calculate 10% for maintenance, 5% for cap ex costs, and 8% for vacancy, the other method is to judge the condition of the property and figure out from there,  If it needs a lot of work I make sure it has a minimun of $100 for month for repairs. 

@Amandeep Singh Bassi you can plug in whatever number you want, but it is unlikely  to match your actual expenses. Repairs are byproduct of three factors:

1. Condition of the property. How new is everything and what quality of fixtures was used? I have seen new construction where all low end parts where used and things start breaking immediately. I have had old properties with water heaters that lasted 40 years.

2. Care of the property. A bad tenant can break most anything. Put eight people in a three bedroom house and things will wear out much faster.

3. Luck. I am not a firm believer in luck, but random or rare things happen. Sometimes it a quality or workmanship issue from years ago and other times it is an act of God.

We do not set aside a specific percentage, but we do have reserves and access to funds to cover repairs. If you purchased enough properties, you would arrive at a statistical monthly percentage average repair cost over time. Still you would find some properties have no expense and others have large expenses. 

Most deal analyzers plug in 5-10% for repairs and CAPEX, so you have 10-20% of rents set aside. Then they plug in 8% for vacancy. You can end up setting aside 15-30% of gross rents for hypotheticals. It may not be a bad thing for people starting out, because it forces you into deals with better cash flow. The only risk can be higher cash flow may mean higher risk - in other words higher expenses...

I know. My answer is still zero. My LOC does all of that for me. Holding out a percentage of my money to cover something already covered makes no sense to me. It's a lot like having to put $5k in your bank account, and leaving it there, in order to get free checking. Both cases just add to my cost, and gain me nothing in return.

Welcome to BP Amandeep. Yes, the calculator should work regardless of your location. For now, it's using USD for the currency but it shouldn't affect the way it calculates your deal.