Analyzing Condos

[ChrisMewhort]

Hello fellow REINians,Recently I`ve been crunching numbers on listings and have come up with a few specific questions. One thing to note is that I am focusing on condo`s, so I`m hoping any suggestions of numbers will be with regards to condominiums.I`m wondering how you go about analyzing properties. It seems that everyone I speak to has their own idea of what kind of padding should be instated on an analysis form. On a macro level my questions are with regards to expenses, but on a more granular level I`m wondering about the following:

* Vacancy rate: Does the accurate vacancy rate suffice here? Perhaps the accurate vacancy percentage doubled? How much does this fluctuate (ie: in 5-7 years will this be different? should I account for this?)

* Repairs/Maintenance: What percentage should I be putting in here? Strata covers the building`s exterior and hallways -- what type of effect should this have on my repair/maintenance savings? I`ve read anywhere from 3% - 8% for detached SFH, so I was wondering if anyone can give their percentages here.

* Contingency/Reserve Fund: What exactly is this for? My best guess is that it`s for extended repairs/maintenance, as well as extended vacancy, etc. If we have strata to look after exterior, and maintenance to look after interior, is this needed for condos? What percentage should I put in here, if so?

* Insurance I`ve heard everywhere from $240 for condos (Park!) to $400 for condos... What do you use? This will obviously have to be updated once the property becomes real and we get actual numbers, but what`s a good basis for a condo`s Insurance?

Looking at my investment plan from a distance I`m wondering at what point to stop collecting each of these funds? I assume once you make three months rent saved up you`re most likely fine to start claiming from of the extra cashflow for profit. When do you tie the knot on your contingency purses?

Thanks in advance for sharing all ideas and experiences, it`s appreciated.

 

[CalvinPeters]

QUOTE (ChrisMewhort @ Oct 26 2009, 05:03 PM) Hello fellow REINians,Recently I`ve been crunching numbers on listings and have come up with a few specific questions. One thing to note is that I am focusing on condo`s, so I`m hoping any suggestions of numbers will be with regards to condominiums.I`m wondering how you go about analyzing properties. It seems that everyone I speak to has their own idea of what kind of padding should be instated on an analysis form. On a macro level my questions are with regards to expenses, but on a more granular level I`m wondering about the following:

* Vacancy rate: Does the accurate vacancy rate suffice here? Perhaps the accurate vacancy percentage doubled? How much does this fluctuate (ie: in 5-7 years will this be different? should I account for this?)

* Repairs/Maintenance: What percentage should I be putting in here? Strata covers the building`s exterior and hallways -- what type of effect should this have on my repair/maintenance savings? I`ve read anywhere from 3% - 8% for detached SFH, so I was wondering if anyone can give their percentages here.

* Contingency/Reserve Fund: What exactly is this for? My best guess is that it`s for extended repairs/maintenance, as well as extended vacancy, etc. If we have strata to look after exterior, and maintenance to look after interior, is this needed for condos? What percentage should I put in here, if so?

* Insurance I`ve heard everywhere from $240 for condos (Park!) to $400 for condos... What do you use? This will obviously have to be updated once the property becomes real and we get actual numbers, but what`s a good basis for a condo`s Insurance?

Looking at my investment plan from a distance I`m wondering at what point to stop collecting each of these funds? I assume once you make three months rent saved up you`re most likely fine to start claiming from of the extra cashflow for profit. When do you tie the knot on your contingency purses?

Thanks in advance for sharing all ideas and experiences, it`s appreciated.

I personally use 5% for both vacancy and maitenance...for no good reason other than this seems to be a good average and I dont want to over analyze. there will of course be up and down years on both of these things, but I would accrue for maitenance repairs on purchase, so this is more of a safety than anything. As for reserve, I use a three month rent model...after the cashflow replaces the reserve I will cut a check for it back to the investor. (if one was used) At that point I just let the money accrue. You can discuss with the accountant the best way to deal with that problem at year end. It is always nice to have accounts with balances, you never know when you will find a good deal and already have cash on hand. On that note, I always get step mortgages, and open the step as soon as possible...opening it is the hard part, you can usually get the amount adjusted with a phone call after it is open. Again, not for spending, but for having money available if necessary.

As for Insurance on condos, the common areas are usually covered by your condo fees (they will give you the Insurance info with your condo package when you buy it) so you only have to worry about chattels and rent. I have a blanket policy for all the condos in our portfolio giving us coverage for 12 months rent (fire etc) as well as replacement of the fridge/stove/wahser/dryer etc. this is only dollars a month for each property and well worth it. My Father has had 2 of his condos in differant towns burn down in the last 20 years. He was happy he had the insurance on the rent, as well he was given back new suites. (nicer)

Good luck on your Journey.