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Theresa, Other/Just Looking in San Francisco, CA

Figuring ROI ; amortizing expected expenses for repairs and maintenance in older homes versus newer homes?

Asked by Theresa, San Francisco, CA Fri May 27, 2011

Is there a formula for the costs of expected repairs/maintenance over a 10 year period which I can amortize monthly. I want such a figure, just to plug into my monthly expenses side in figuring my ROI. If I could approximate how much more expensive (if any), a 1960's house would be to repair/maintain.....than a 1990's house, or 2005 house.
In other words, besides greater utility bills for older, less insulated, less efficient air and heat in older homes, are there any other items that I'd need to budget for in figuring ROI, rather than the ROI of newer homes, speaking in general? I know that each house has it's own financial personality.

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Robert Adams Broker NV, RI, MA’s answer
Honestly there is a lot of different ways to calculate expenses and repairs on a investment property. Some people are very conservative in their estimates while other are more aggressive. Before purchasing a property you will know the fixed expenses and then you will have to calculate the variable expenses however you see fit. Vacancies and repairs are a wild card. I choose to calculate it more conservatively figuring high on expenses and low on revenue so that at the end of the year I have planned for the worst and can be happily surprised if the numbers come in better than expected vs the other way around.

Some people use what is called the 50% rule also. This is where you take the yearly rent collected and divide it by 50% for all expenses, repairs, and vacancies. Now that prices in Vegas have gone up considerably over the past few years this estimated 50% is less conservative but still a good rule of thumb. I would dig deeper into the fixed expenses once you have an actual subject property.

Right now in Vegas after calculating all of these costs you can typically plan on getting around 4- 5% CAP rate on your money. We work with a lot of investors here in Vegas. If you would like to discuss the market or your investment plan further please feel free to contact me directly. Either way best of luck with your investments!

Best Regards,
Robert Adams
Licensed Real Estate Broker in NV, MA, & RI
NV Broker/Salesman at The Adams Team at Rothwell Gornt Companies
C:702-349-9175
RobertAdams@LVrealestateHELP.com
http://www.LVrealestateHELP.com


MA & RI Real Estate Broker at Sankey Real Estate
C: 508-250-0345
RobertAdams@MArealestateHELP.com
http://www.MArealestateHELP.com
RobertAdams@RIrealestateHELP.com
http://www.RIrealestateHELP.com
0 votes Thank Flag Link Mon Jul 28, 2014
BEST ANSWER
Theresa one way to moderate unexpected repair expenses is to have a home warranty ($450-$700 plus $55 per service call per year). As David mentioned, A/C repairs can kill your profit. We use 4.5% in our cash-flow models regardless of age. Speak to your tax consultant to any additional benefit you might realize in deducting repair expenses (and don't forget depreciation!) so that you can properly plug that into your model.

Regards,

________________________________
John A. Brassner, MBA, REALTOR®
Residential â–ª Commercial â–ª Business Sales
________________________________

Prudential Americana Group, REALTORS®
10777 W. Twain Ave #333
Las Vegas, NV 89135
Cell: 702-808-9816
Fax: 702-995-0488
Email: john@john4realty.com
http://www.NevadaRealEstateCenter.com
1 vote Thank Flag Link Fri May 27, 2011
There are so many unforeseen items in older homes, how do you expect to figure out everything and how can you feel there is a formula without full knowledge of the home and its condition!
1 vote Thank Flag Link Fri May 27, 2011
Theresa, great question! How I handle that is I assess the condition of the home and project the costs to repair or replace whatever may need repairing or replacing over the next 10 years!

In general, I plug in 4.5% a month for upkeep and repairs. In addition, if the rugs, Air Conditioning, appliances, roof, exterior painting - may need replacing/repairing in the next 10 years, I calculate a cost for those and divide that cost by 120 and that gives me my "known upcoming repairs" monthly allowance to add. This is over and above my 4.5% maintenance figure I already have plugged in.

There are many ways to enhance your profits, and minimize your expenses - John Brassner alluded to one - a home warranty.

The best way to ensure profitability is to buy it right to begin with, and that is getting increasingly more difficult. Good Luck
0 votes Thank Flag Link Mon Jul 28, 2014
Hello Theresa,
I used to think that purchaing a new home was the way to go because of the builders warranties, and I still do agree that there are a lot of wonder perks to buying new. But with the way our Las Vegas housing market it right now. So many of the home for sale are the newer homes. Which most of them have been left unattented for months and even years. There are so many things to consider when purchasing a place here in Las Vegas.

Penny O'Brien with Simply Vegas
702.321.9383
0 votes Thank Flag Link Tue May 31, 2011
Theresa. Las Vegas homes need TLC for airconditiorers and roofs.


David Cooper! Las Vegas Bank Owned Foreclosure Investor
Save 20% and more.. For Freee Daily List
email: davidcooper@lasvegaswinner.org or Call +1-7024997037
0 votes Thank Flag Link Sun May 29, 2011
For David, HSA Home Warranty. All home warranty companies have their issues. And most of those issues revolve around the "preferred venders" they use. One nice thing about HSA is that you can use your own service provider as long as they agree to HSA's pay schedule..
0 votes Thank Flag Link Fri May 27, 2011
John..Which home warranty have you found to be reliable.? I had an AC go out, it took 3 days for a repair. Had to pay a hotel bill for tennant as it was over 100 degrees with no AC.

David Cooper! Las Vegas Foreclosure Investor in Bank Owned REOs at 20% off. For Freee Daily List email davidcooper@lasvegaswinner.org or Call +1-7024997037
0 votes Thank Flag Link Fri May 27, 2011
The biggest repair expense on rental houses is the air condition unit. I have a 1994 house built by Pulte Homes that hasn't cost me a dime to repair or maintain. I also have another house built by a spec builder, where the unit had to be replaced after 6 years at a $4000 cost. How to amortize such a cost in a formula is beyond me, and I have been doing this for 35 years.
I like to find out who the builder of the home is. The best selling builders seem to make a better product.
The price difference between a 1960's home and a a home less than 6 years old is Not that great in Las Vegas. And logic tells me that 1960's home will not be as appealing to a first time homebuyer when I want to sell.

David Cooper. Las Vegas Foreclosure Investor in Bank Owned REOs. Save 20%. for free list
email: davidcooper@lasvegaswinner.org or call +1-7024997037
0 votes Thank Flag Link Fri May 27, 2011
Theresa: 2011 spring market is a great time to take advantage of Las Vegas being greatly under valued. To answer your question there are a lot of formulas out there but I like the one when you Google "Rate of Return" and look at : rate of return from Wikipedia I think this is a good one. If I may assist you give em a call at 702-326-1483
0 votes Thank Flag Link Fri May 27, 2011
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