Make my numbers work

[Volatile]

Hi guys, i hope all is well.

When i check out possible properties i plug my numbers into an excell spreadsheet and have a before tax and after tax cashflow figure. Is there are better way of doing it?

What % do you use for maintenance?
What % do you use for vacancies?

I keep seeing people talk about yeilds etc... what formula are you using to calculate that?


(Gross Rental PA)/(Purchase price + improvements)

Cheers
James

[drelly]

Hey James,

A lot of people use $500 for maintenance but long term, $1000 is probably more accurate. I use 2 weeks vacancies.

That formula above is gross yield which is a very general indication as it means little until you calculate your costs.

cheers,
Dave.

[zensei]

Hi James,

To learn more about analysing deals / calculating costs you may want to look at this excellent thread :

http://www.propertytalk.com/forum/showthread.php?t=2923&

Cheers,
Andre

[BusyLizzy]

I also use a spreadsheet that I have created that was originally based on other 'acquired' ones, then 'tweaked' to suit me. If I see something that I am serious about, then I plug the numbers into RevIQ for a more detailed analysis.

I use 2 weeks vacancy..... but often use $2000 for annual maintenanace (and sometimes worry if I'm being too conservative... I guess time will tell).

Maintenance allowance really depends on the nature of the property... an 1950's weatherboard will be much higher than a new brick and tile. Adjust it accordingly.

[Heg]

When I see a possible deal, I do a quick calculation of rent x 52 then divide by purchase price. If the yield seems ok, I then put everything into REVIQ. This gives me all the info I need, including pre tax and after tax cashflow.
I allow 3 weeks vacancy and $1000 per year for maintenance. I also allow $1900 for lawyers and building reports.
Cheers
Heg

[hawkeye]

The amount you budget for vacancies and maintenance depend entirely on the property you are looking at buying.

We use between 2 and 4 weeks vacancies a year depending on the nature of the property and the type of tenants it attracts. Our actual figures fall in a wide range from never having had a days vacancy (even with multiple tenants) and an average of 13 weeks for one particular flat we have in an old house in 12 flats.

I'm rather ashamed to say I wouldn't want to live in this particular flat myself although it is clean and not in any way unsanitory. This particular flat with a small amount of work has now been full for the last six months and when the current tenant leaves we will renovate it and add another room which will probably increase the rent between 70 - 100% (The current layout and facilities are that bad!!)

Two weeks vacancy works out to be 3.85% of the total year. The three properties where we use the two weeks as a guide we have vacancy rates of 0%, 0.86% and 1.23%

We use four weeks for the block of 12 (7.69% target) and have had 4.29%, 0%, 8.05%, 4.68%, 6.75%, 24.55%, 2.08%, 0%, 3.51%, 0.78%, 1.17% and 1.30%

As an aside analysing statistics like this allow you to target properties that are not renting well and do something about it. All of these averages have dropped considerably since we moved to Christchurch a year ago and took over the property from the management company. Minimising vacancy periods and preventing tenant turnover and the costs of re-letting are a great way of increasing the cashflow from a property.

With maintenance it is all about the condition of the property that you are buying and the materials it is made of.

If the previous owner hasn't touched it in years while you might get it at a knock down price you need to budget on a truck load of deferred maintenance costs. Be realistic, even a touch conservative when doing the numbers. Many people avoid older wooden properties and after being involved in renovating a number of them I can understand why that is. Everything you touch usually uncovers another problem and if that will cause you to stress then they should be avoided. Obviously you can budget far less a year for a brick, aluminium window and tile place in good condition than you can for a rundown weatherboard villa.

One event can blow the budget apart. Yesterday we had to hire a very large digger to remove 12 tonnes of Pampas grass to enable the plumbers to fix the water main which had burst at one of the properties. My two pre- school sons enjoyed the show but it probably would have been cheaper to take them to Disneyland?

Just my 5 cents worth.

[BusyLizzy]

We use between 2 and 4 weeks vacancies a year depending on the nature of the property and the type of tenants it attracts.

That's a good point. My 2 b/r get tenants very quickly, but the 5 b/r place takes longer to get tenants in place. Both times I have had to find tenants, it took 4 weeks.

[SuperDad]

Hi.

I'm a newbie, and I've just read the thread Andre recommends below. Great reading!

Paul.

Hi James,

To learn more about analysing deals / calculating costs you may want to look at this excellent thread :

http://www.propertytalk.com/forum/showthread.php?t=2923&

Cheers,
Andre

[Volatile]

Once again thanks guy's some great advice.

My next question how do i approach an agent with my strategy and buying rules and then know if they are going to work for me?

[drelly]

Hi James,

Check out this thread... it's a great source of information about how one person started and became successful.

http://www.propertytalk.com/forum/showthread.php?t=3173

cheers,
Dave.

[JohnL]

When I went through some of Robert Kiyasaki's property management material, I noticed that he budgets routine maintenance separately from the longer term refurbishments. Of course he is dealing with large apartment blocks but I have always thought this would be a very useful way of budgeting (and putting aside money for the refurbishments).

John

[xris]

When I went through some of Robert Kiyasaki's property management material, I noticed that he budgets routine maintenance separately from the longer term refurbishments. Of course he is dealing with large apartment blocks but I have always thought this would be a very useful way of budgeting (and putting aside money for the refurbishments).

John

Quite right. An annual maintenance budget can, and usually is, easily underestimated.

You may get away with spending only a few hundred dollars per annum for a while, but sooner or later you will be hit with a new roof, a total external paint job, rewiring throughout, and so on. Averaging this out over, say ten years, you will soon get a clearer idea of what should be set aside for maintenance each year.

$1,000 for a average 30 year old house? Ha ha!

xris