The lenders give 75% of the rental income because they figure there will be a vacancy at some point.

@Nicholas UrcuioliFirst of all you wouldn’t value a three unit building based on Cape Rate.Four units and under are considered residential and you would use the price comparison approach on an appraisal.Cap Rate is purely a measure of risk and never a measure of your actual cash on cash returns or future gross profitPlaces like San Francisco Los Angeles and Manhattan have way more renters (demand)  then there are vacant units (supply).This makes these markets extremely safe because the risk of the whole building becoming vacant is almost 0Markets with higher Rates like Ohio or Alabama must pay a higher return on investment because they are riskier markets with much higher vacancy rates and demand and Manhattan have way more renters parenthesedemand

Rehabbed foreclosure, 1955New hvac, New roof, 1 year home warranty paid by sellerInitial expenses about $6000 for: Appliances ( no stove or fridge)AC  (duct work in place but no central unit) $130 monthly cash flow 6.29 cap rate COC 5.2% (Vacancy , 8.5%, capex, 8%,Management 10.5%, maintenance/repairs 8%)I’ll be taking a mortgage out on it.

Rehabbed foreclosure, 1955New hvac, New roof, 1 year home warranty paid by sellerInitial expenses about $6000 for: Appliances ( no stove or fridge)AC (duct work in place but no central unit) $130 monthly cash flow 6.29 cap rate COC 5.2% (Vacancy , 8.5%, capex, 8%,Management 10.5%, maintenance/repairs 8%)I’ll be taking a mortgage out on it.

., Insurance, Vacancy, Repairs, Cap.

Put the unit on the market for rent to reduce vacancy cost.

You can boot these people or maybe piss them off with high demands.. and buy carpet and paint NOW with several months of vacancy. 

You’ll also still want to take out a reserve/vacancy. 

The areas that he/she will be improving are 1) revenue, 2) expenses, and 3) vacancy rates.

I think your vacancy and repairs estimate is low as well.