Quote from OldTrader:
Making these "assumptions" is a big mistake. Properties need repair for lots of reasons. Tenants damage them, burn holes in the carpet, scrape, chip, in general wear out paint, stuff things down the toilet and other plumbing. In fact, a huge percentage of ongoing repair has to do with plumbing, leaks, cracks, parts wear out.
Wear and tear over time creates what we call "deferred maintenace". In other words, there are certain capital improvements that you create set-asides for, for that future time when you are required to replace it. For instance, the furnace and/or AC. These items might last 20 years....but, they wear out a little each year....so a set-aside for the ultimate time when they would be replaced is called deferred maintenace. When you reach the date when your furnace shoots craps you have the dough.
Then, the tenant gets laid off. The first month he's late, and doesn't pay. You evict. This may require attorney fees depending on you and the state you are in. You don't receive the rent while you're evicting. If your tenant is "well-educated" there are ways to delay eviction. While you're evicting him he does damage. After you've evicted him he still doesn't leave. You have to wait for the sheriff to set him out. When you finally get posession you discover he got mad at you during the eviction and punched holes in the wall...or worse.
After the repairs are done you advertise...more money. And all the while you're receiving no rent.
Snow-removal, lawn mowing, bookkeeping. You aren't going to do it all. In fact, I don't do much of it at all. Therefore, for my properties, what ends up being fairly typical over time, including deferred maintenance, is 35-40% for taxes, insurance, vacancy, bad debts and checks, repairs, and all other expenses. For this net rental amount you then deduct your p&i payment.
In your case, you're newer townhouses. This is a property type I've never cared for. Nonetheless, you have an association dues that I didn't see you mention. And again, taxes. Maybe insurance is included in your association dues...but you still may want liability insurance.
And in my case, I didn't buy real estate to get a job called painting, lawnmowing, snow shoveling, etc. I hire these things. I also hire plumbers, electricians, etc. Now, I wield some weight in terms of what I pay....but still, it's more expensive than doing it yourself. I figure labor is maybe 70% of the total cost of a job.
Some thing to think about. My guess is if you re-run your numbers using more realistic figures you may be at a negative cashflow.
In my case, I don't buy negative cash flow....period. I buy properties cheap, at a big discount, in distressed sales. Most of the time I have to rehab them (which I hire out). But the result is that I have large equity in the property before I start. This also causes a higher cash flow.
OldTrader
PS. Oh by the way, hard to screen the tenants as effectively these days, since most of the good tenants have bought a house! You're faced with the leftovers.
