Just like wholesalers who subtract the rent from the PITI and say that is how much «cash flow» you're going to get... not taking into
account vacancy costs, utilities, maintenance, etc etc..
Not exact matches
Finally, the sales comparison approach doesn't
account for
vacancy and collection loss, or unusual
costs for repairs and other expenses.
It measures gross rental income as a percentage,
accounting for potential
vacancies, the
cost of maintenance and non-collection of rent that landlords face from time - to - time.
Then estimate the amount of
vacancy shortfall to deduct from the stabilized value to
account for the
costs, risk, effort and skill that a buyer of the property would require to bring it to stabilized occupancy.
Right now, I would be interested in coming to agreement with my finance partner on a set aside (10 % repairs, 10 % CapX, 10 % property mgmt - I do it, 10 %
vacancy) that we set aside in an
account and then share the repairs and other
costs moving forward.
You must
account for contingencies such as
vacancy periods or unexpected maintenance
costs: you should allocate approximately 10 % of your property's value for
costs such as taxes, maintenance and management fees.