Posted by phil fernandez on January 30, 2001 at 17:04:51:
In my area the vacancy rate is something like 1% right now. We tend to use a vacancy rate of 5% and the local appraisers and banks also like to use the 5% vacancy figure. Of course that number will vary from market to market and over time may change. I’d hate to be in a market where vacancies would be above 5%. It would make me nervous about getting and keeping good tenants.
As far as the 40% operating expense figure. This number is just a rule of thumb. Every property will be a little different. Your 20% - 30% figure to me seems low. Within my 40% figure I include what is called a reserve for replacement. So when the roof need replacing, the furnace and hotwater heaters need replacing, that money will come out of the cashflow, not out of my pocket. Many people disregard the reserve for replacements. I include that in my expenses.
Hope this clarifies my numbers.