What percentage of my rental income should I allocate for vacancy and repairs?

Question

I have a 4 unit house and would like to know what is the typical calculation for the amount of money to be allocated for vacancies and/or repairs.

I am in the US, New Jersey.

Answer 1

I normally advise landlords to calculate their income based on 10 rent installments rather than 12 per year. That figures about 16% loss through vacancy and repairs. Obviously the demand for rentals of your type and the general condition of the property have a bearing. This "rule of thumb" assumes a property in average condition in an average market.

Answer 2

Hi there,

In My area in Australia at the moment we have very big demand for rental properties so vacancy is very low.

An average for all over the world i have heard is 10% for vacancy. As for repairs this can vary a lot depending on the age of the units and weather or not you provide white goods with it (dishwasher's, fridges, washing machines) because they can mean you have to up your allocating towards repairs......

I hope this helps you out.

Cheers, ToNy!
"Success.Trail"

Answer 3

I am a commercial appraiser in NY. We estimate vacancy and collections at 5% of Gross Income. Most prudent investors calculate a reserve for repairs in advance somewhere between 2-3% of effective gross income(gross income-vacancy). Example a landlord knows in 5 years they will need a new boiler. It costs them $10,000 and they can yield 5% on a yearly basis(amortized monthly) to invest the funds in. They would set aside $147.05 (if amortized monthly) a month or $1809.75 (yearly if amortized yearly) for the next 5 years to accumulate the $10,000 when needed. Unexpected things can happen and if you want to be safe I would allocate more if you feel the need to.

Answer 4

I own a 4plex. (previously since 91 have owned rental property)

when i bought my 4plex i put it to a standard what i would want to live in and wrote off the repairs that year...and the "bank appraisal " went up $100 k......
and that is the class of people i attracted..

working people with good income and reliable..
I get my rent paid on time..and the place always looks good so the appraisal value is there..
so the first year had lots of repairs..
then I averaged for the 2nd year......and did the (I pay $5000 in taxes and $1200 for insurance)....so took in ap. $2000 per month ..and had a rental meeting of the tenants...and asked what they wanted done.. repairs or a "rental credit"....well......it most certainly made good relations... so everyone wanted a rental rebate somehow..for the year.......I then went out and bought brand new "energy efficent appliance" (yep got a stainless steel set as well).....
also one of the couples..during the tenancy was in a huge car accident and under "disability" both were for a while..so I get a credit for having someone "disabled" in the building..and keeping their rent low (don't know if you have that)...
this is not my "only" source of income.. I bought this to see if I could get it to work for me.......

also I took off on a vacation for 6 weeks..and these people were so happy I let them manage the building while I was gone.....it worked great...........didn't have to use a management company at all.........

summation.......happy tenants are good tenants......and you won't need to bring in mediation.....

Answer 5

Its 30% allowed fo repairs and taxes. as per Income tax rules in INDIA