As I make my calculations to determine whether a property will cash flow for me (multi family) is there a base percentage figure that you generally use to calculate maintanence costs? The figures given to me by the present owners are very low and I suspect its because they haven’t been doing sufficient upkeep on the property. How do you generally figure maintanence costs so that you don’t get burned later.
Mark
Howdy Missionman:
If you look at enough deals where the expenses are listed for you then you will get a general idea of the expenses. Every area is different. And like you said you can alter the expenses by no fixing anything. Trying to calculate the expenses at you project you will need to know several things. What is the turnover rate. At a student property you will probably have higher turnover and in military towns and with mostly 1 bedroom units. Figure the make ready costs on average : Say all the units will need cleaned for sure at $50 per unit. Maybe only 50% will need a full paint at $300 each and 50% will just need a touch up at $50 each. How about the floors. Carpet is more expensive to maintain. You may want to estimate cleaning at $100 per unit and replacing about 25% With hard tile maybe just replacing a tile or two per year and maybe a whole unit or two per year. I hope you get the idea. It is basically a guessing name. How old are the AC’s and are they window units or central systems and the appliances, how old are they. Better to buy used at about a 3rd or half the cost of new.
Some of the other maintenance expenses will be easy to figure. If you have a full time person doing the work you will just figure their salary for the year plus and additional expenses FICA, SS withholdings for instance. If you have a pool is it serviced by a company and the same with other areas like yards and exterior trash.
You might want to look at several sales packages on Loopnet for instance. Some do list total expenses at so much per unit per year or per foot per year. I would not give this a whole lot of weight and try to figure the expenses like I outlined above. Hope this helps.
Thanks Ted,
Sure appreciate the help. Taking a greater look at the property, I see that the rents are really low in addition to the fact that the owner presently is paying for all utilities. Basically a 1/1 is renting at about $300 including all utilities. I figure that I’ll need to get all the units changed over to seperate meters so that the tenants can take care of that themselves so it doesn’t cut into the profit. The majority of the properties use window units if they have them at all, so I am also figuring that I’ll need to install window units in the others in order to get some better tenants. I’m not sure about the flooring material, but I know that in th elower end unit sin Richmond, VA they use Vinyl Composition tile (VCT), that’s the stuff that the use in the grocery stores. It is a simple glue down and very durable, but it doesn’t necessarily make a ‘cozy’ feel. I am considering going with something like that. I think that carpet would just be about the highest maintanence cost for flooring, with the exception of the initial install of ceramic. Some of the properties have hard wood floors in them I think. I have refinished floors before, but its time consuming, and expensive if you don’t do it yourself. Have you had any experience with these? I’m not sure how durable they would be if the tenants didn’t look after them.
Give me some tips on doing some quick, cheap upgrades to properties that really add to the athestics of a place with out taking a big chunk out of your wallet.
I know one of the things that I did on my own home when we first got into it that really made a major difference was just replacing the receptacles, light switch, and covers to the newer crisp white color. Later we did vinyl replacement windows, but that ran about $150 a window to purchase with us doing the install. If I consider putting window units in, would it be worth my consideration to cut a whole in the wall so as to make them more permanent and not hinder the window operation or would it be too much to worry about when I need to replace them? Your opinion? When I run my calculations including taxes, insurance, maintanence and management, my figures run realy tight with me paying all utilities. Should I consider not hiring the managment co. until I get more tenants or is that the reverse? How effective are managment co.'s at filling prop’s as opposed to just taking care of everyday tasks like collecting and maintaining? I can probably hold off raising the maintanence some, but I my thought origanlly wer that if I budget about 20% of gross income (-20% vacancy) that should get me enough money to set things right and get me close to filling the place. Your thoughts?
Thanks again,
Mark
Mark