Re: NO formulas !! - Posted by camgere
Posted by camgere on February 07, 2008 at 16:03:16:
It was of course Jimmy who gave you good advice.
These are hard questions. So you have to come up with strategies.
I’d use 3% - 5% of rents for small recurring repairs. I’d use 3% - 5% for large repairs. These numbers could be 10%, but I don’t want to sink the ship without more information.
I usually use 90% occupancy, but I would find out the actual occupancy when buying an apartment.
Ask owners for the last two years rentals tax returns. The owners should give you the rents and occupancy. You can double check the gross with the tax return.
Read the classifieds for rentals, write down rental prices if they are on the “For Rent” signs as you drive around town. It is easier to become an expert on one area rather than a bunch of areas. This becomes you “farm” area.
With experience you have your own records and can calculate these numbers precisely. This is the advantage of experience.
Try to get some estimates of what a roof, AC etc… cost. Then divided by the number of years it should last. This will give you some idea of what you are getting into. Your building inspector should be able to help you with this if you actually make an offer.
Apartments are a collection of mechanical systems just like a car. As you walk around your house think of all the systems hidden there (water, electricity, heat etc.)
You can never predict the future, but you should at least have a plan for success if everything goes right or even close.
There tends to be a prevailing expense allocation for an area. Apartments, which are not separately metered, tend to have owner supplied utilities. I always pay for watering so my thousands of dollars of landscaping and lawns don’t get destroyed if I get in a p****ing contest with a tenant. I never pay for gas, electric, cable or phone (SFRs).
Do the best you can on your first rental and run the calculations so you’ll have good data for the following ones.