Question

What resources can you use to determine some of the more difficult line items? For example, how can you gauge vacancy or potential rent flows. What would you allocate to reserves or annual repairs? Do we just stick to rules of thumb or is there a better way?

Answer 1

In my opinion, determining these cash flows, vacancy or occupancy rate is very challenging. Suppose you have a rental rental income, then looking at the are and asking other home owners you can determine the vacancy rate but arriving at an actual number would depend on a number of factors like disposable income, job market, economic situation, interest rates, etc. which will be difficult to model. Overall, the potential rent flows and vacancy would depend on one's judgement or the rule of thumb would be one month's gap between tenants, i.e. 8% vacancy rate. As far as the repairs and maintenance are concerned, the rule of thumb wold be to budget one month's rental income or 5-8% of the total rental income. In my view, the factors that can be used to determine the vacancy rate, rental income, repairs or maintenance are very difficult ton corporate into a model. Hence, it has to be rule of thumb or based on one's opinion.