I had another great question come up from a friend of mine.
"I use 40% of Gross Income as my Total Expenses (taxes,insurance,repairs,vacancy,etc) not including mortgage and in my case, management fees since i manage the properties myself. Am I on the lower or higher end of it?
How do you guestimate your total expenses? is there a formula?"
I believe the context here is for estimating what effect this will have on cash flow when you are coming up with an amount to offer and therefore finance when purchasing a cash flow property.
I’ll tell you where I really want to be – I want the maintenance to be 10% of gross income or less. You’ll get this on properties that are mid 1960’s and newer, or older homes that have the plumbing, electrical, and heat and air updated.
I remember when I first started out I bought these old junker houses – you know the ones…pre-1950’s plumbing, wiring so old that you didn’t trip the breaker, you blew a fuse…and yes, tempermental floor furnaces.
I thought you just bought the house, gave her some paint and carpet, and you are off to the races.
WRONG!!!
You’ll pay through the nose if you don’t get these items updated to some standard that doesn’t required constant maintenance. That doesn’t mean you have to totally rewire the property just because it has a fuse box. But it does mean that you need to know where to spend your money properly on upgrades. If you don’t, you might as well figure in 20% on mainenance and a higher than usual vacancy rate.
That brings me to vacancy, which ideally is less than 10%. If you are running higher than 10%, it’s time to take a look at what’s not working right in your business. Basically, you have a break down in one of the following areas:
1) You aren’t getting your properties ready to rent quick enough between renters,
2) You don’t know what you are doing when it comes to collections,
3) Your marketing / advertising isn’t getting you enough traffic into your properties,
4) Your tenant screening is not adequate, or
5) The amount of your advertised rent and/or deposit is too high relative to your market.
As for property tax and insurance, it’s best to use actual values.
Once a year you should be doing a financial statement, even if you don’t have to put one together for the bank. When you do, calculate out the maintenance and vacancy that you are experiencing. The amount of maintenance that you actually do will be in those numbers.
As for vacancy, you can calculate that by taking the amount of income you collected (other than late fees and seized deposits) and divide that by your potential income if 100% of rents would have been collected for the year.
February 9th, 2010 at 6:00 pm
Saw your blog bookmarked on Digg.I love your site and marketing strategy.
February 9th, 2010 at 8:45 pm
The information presented is top notch. I
March 7th, 2011 at 10:25 pm
i always enjoy to do blog hopping and i stumbled upon your blog ;;,~-`
March 10th, 2011 at 3:20 pm
A blog like yours should be earning much money from adsense.”",`.
March 13th, 2011 at 12:43 am
I’m happy I found this blog, I couldnt find any information on this topic matter prior to. I also run a site and if you want to ever serious in a little bit of guest writing for me if feasible really feel free to let me know, i’m always appear for people to examine out my site. Please stop by and leave a comment sometime!
March 13th, 2011 at 3:30 pm
First of all, allow my family enjoy a person’s command during this matter. Even though this is certainly brand new , nevertheless soon after registering your site, this intellect has exploded extensively. Allow all of us to take hold of one’s rss to help keep in touch with at all probable messages Sincere understand but will pass it on to help admirers and my personalized are living members
March 13th, 2011 at 3:59 pm
Hey – nice blog, just looking around some blogs, seems a quite nice platform you might be utilizing. I’m currently using Wordpress for a few of my websites but looking to alter 1 of them through to a platform comparable to yours like a trial run. Something in specific you’d recommend about it?
March 13th, 2011 at 8:52 pm
I believed it was going to be some boring old submit, however it seriously compensated for my time. I will submit a website link to this page on my weblog. I’m sure my visitors will discover that incredibly useful.
March 14th, 2011 at 12:58 am
Nice to be browsing your weblog once more, it continues to be months for me. Well this post that i’ve been waited for so long. I want this write-up to total my assignment in the university, and it has exact same topic with your write-up. Thanks, fantastic share.
March 14th, 2011 at 1:36 pm
Excellent job here. I genuinely enjoyed what you had to say. Keep going because you certainly bring a new voice to this topic. Not many people would say what youve said and still make it interesting. Properly, at least Im interested. Cant wait to see extra of this from you.
March 14th, 2011 at 9:05 pm
First of all, allow my family value a person’s command during this matter. Even though this is certainly brand new , nevertheless soon after registering your site, this intellect has exploded extensively. Allow all of us to take hold of one’s rss to help keep in touch with at all probable messages Sincere understand but will pass it on to help admirers and my personal are living members
March 15th, 2011 at 4:55 am
Ive been meaning to read this and just never obtained a chance. Its an issue that Im quite interested in, I just started reading and Im glad I did. Youre a wonderful blogger, 1 of the finest that Ive seen. This blog surely has some facts on subject that I just wasnt aware of. Thanks for bringing this stuff to light.
March 16th, 2011 at 12:33 am
Thank you for an additional fantastic post. Exactly where else could anyone get that type of info in these a perfect way of writing? I have a presentation subsequent week, and I’m on the look for such information and facts.
March 16th, 2011 at 2:43 am
Youre so right. Im there with you. Your weblog is certainly worth a read if anyone comes throughout it. Im lucky I did because now Ive obtained a whole new view of this. I didnt realise that this issue was so important and so universal. You definitely put it in perspective for me.
March 16th, 2011 at 11:06 pm
I admire the beneficial information and facts you offer inside your content. I will bookmark your blog and have my youngsters examine up here generally. I’m fairly positive they will discover a lot of new things here than anyone else!
March 17th, 2011 at 9:25 pm
Youre so right. Im there with you. Your weblog is undoubtedly worth a read if anyone comes across it. Im lucky I did because now Ive got a whole new view of this. I didnt realise that this issue was so important and so universal. You undoubtedly put it in perspective for me.
March 17th, 2011 at 9:26 pm
Please tell me that youre going to keep this up! Its so great and so important. I cant wait to read more from you. I just feel like you know so very much and know how to make people listen to what you have to say. This blog is just as well cool to be missed. Fantastic things, really. Please, PLEASE keep it up!
March 18th, 2011 at 3:13 am
I’m happy I found this weblog, I couldnt discover any data on this topic matter prior to. I also run a site and if you want to ever serious in a little bit of guest writing for me if feasible really feel free to let me know, i’m always appear for people to check out my site. Please stop by and leave a comment sometime!
March 19th, 2011 at 4:19 am
I’m happy I found this blog, I couldnt learn any information on this topic matter prior to. I also run a site and if you want to ever serious in a little bit of guest writing for me if achievable really feel free to let me know, i’m always look for people to check out my site. Please stop by and leave a comment sometime!
March 19th, 2011 at 7:04 pm
Please tell me that youre heading to keep this up! Its so great and so important. I cant wait to read more from you. I just feel like you know so significantly and know how to make people listen to what you have to say. This weblog is just as well cool to become missed. Good things, genuinely. Please, PLEASE keep it up!
March 20th, 2011 at 5:36 pm
I think youve made some actually interesting points. Not also many people would truly think about this the way you just did. Im really impressed that theres so much about this topic thats been uncovered and you did it so nicely, with so substantially class. Very good 1 you, man! Really terrific stuff here.
March 20th, 2011 at 5:59 pm
Terrific job here. I definitely enjoyed what you had to say. Keep going because you surely bring a new voice to this topic. Not many people would say what youve said and still make it interesting. Well, at least Im interested. Cant wait to see a lot more of this from you.
June 17th, 2011 at 11:33 am
Excellent read,just passed it onto a friend who has been looking for this information also
September 10th, 2011 at 4:17 pm
I wish to convey my respect for your kindness supporting those individuals that need help with your subject matter. Your very own dedication to getting the solution across turned out to be amazingly practical and have truly allowed workers just like me to get to their targets. Your entire informative tips and hints indicates a whole lot a person like me and further more to my colleagues. Best wishes; from each one of us.
November 29th, 2011 at 7:31 pm
Thank you a bunch for sharing this with all folks you actually realize what you’re speaking approximately! Bookmarked. Please additionally consult with my website =). We can have a link trade arrangement between us