What Expenses Am I Missing?
What other expenses should I consider when dealing with an 8 unit - taxes, insurance, vacancy rate, utilities, trash, management, maintenence, and though not considered an expense, the debt service/mortgage payment. Do I need to figure in reserves for unexpected repairs? what % rate would I use for this? anything else?
We pay a private property manager 5% of gross rents, but that is definitely on the low end. 8-10% is pretty average, and depending on the area, I have seen some of the larger companies charge up to 15%.
Make sure you get clear with your management exactly what services will or will not be performed.
Other expenses, lawncare and snow removal, advertising the vacancies. Definitely give yourself a cushion/ reserves when figuring the cash flow. That all depends on the units themselves. If it is an older prop, give yourself more room. A newer prop may not have as much maintenance.
Check with your local/state government agencies, you may have to get an Occupational license, and pay a fee for annual fire inspections, etc. Ask seller what company they are using for management services. As far as reserves some lenders may require you to set aside a % .
You may have calculated this in your vacany rate, but sometimes I have seen bad debt percentages for projected expenses. You may have a tenant ,but they are not paying. Then you lose rent and have to incur eviction costs.[ Edited by johnbriscoe on Date 03/07/2005 ]