Hi all.. First time posting here. Wasn't quite sure how to search this question out so if it's been asked before please do tell me. Also please let me know if this is in the wrong forum or group. Otherwise, here goes.
When I'm crunching numbers to figure out my max asking price on a potential rental investment, I'm taking into consideration (among many other things) 10% for maintenance.
Let's say my PITI is $2000.
Are you taking 10% of $2000 and adding it? Therefore, $2200?
Or would the rent be $2222? Because 10% of $2222 (the rent amount) would be $222, leaving the $2000 (which is the PITI)
Because when I read about rental investments, it says to make sure you rent it out high enough to cover maintenance (and other items to worry about as well. Just keeping it simple here). So this could be perceived two different ways. While in this example the difference is only $22, as you can see, it really could add up quickly. Especially in my area where everything is so expensive.
Here is a better example of what I mean. Let's say total PITI is $2700
Maintenance 10% = $270
Vacancies 5% = 135
Management 10% = $270
Total Maintenance/Vacancies/Mgmt = $675 (A total of 25% of the PITI of $2700)
So let's add $675 to $2700 (PITI) and you get = $3375 Rental price - $675 is only a total of 20% of the rental price.
ORRRRRR Are we doing it the harder math way?
The maintenance/vacs/mgmt expenses should be percentages of the rental price.
If I were to cover my maintenance/vacancies/management at a total of 25% of my rental price then I SHOULD be renting it out for a total of $3600. Because 25% of $3600 is $2700 (My PITI). However, this puts aside a total of $900 for these expenses which is an additional $225/mth. It's rather large difference when trying to factor a maximum price to pay for multiplexes in the 400-500k range.
I hope this all wasn't too convoluted. And thank you again for taking the time to help me out!