re: Information for my fellow Real Estate Investors

I'm working on a growth model based on ILB's spreadsheet and I’m looking for a sanity check on a few percentage assumptions/increases.

The model is built to buy one house, 0% down (private lender), $5000 into the "Building" account at time of purchase. Closing costs and repairs are would be in addition to this but for the model assume we are going into it fully ready to rent. The Building account is built up to $10,000 + 1 year worth of carrying costs (mortgage + insurance + taxes). Once that account is built up, all additional cash flow would be paid to the mortgage to pay it off early. Any big costs would pull from the Building account and repaid from the positive cash flow. All management is handled in-house through year 15 then 10% to a property management firm thereafter. Also I built in lawn maintenance starting at year 15 as well (handled in house before).

Let me know how realistic these percentages and assumptions are or if I should increase/decrease:

• First Year Rental Rate: 1% of purchase price (We’ve been analyzing a lot of properties and this number seems to be our sweet spot. I would say it’s decent for single family properties fairly conservative for multi-family.)
• Rental Increase: 5% yearly (I thought this was high but when I look at it, that means rents double every 15 years. I think that’s a reasonable expectation.)
• Vacancy Rate: 8%
• Usage of vacancy account: 50% yearly (Basically saying we’re going to have 4% vacancy or 1 month per 2 years. I think it’s low BUT will have built in protection with the initial $5,000 and with the rental increases over time, the value of the 4% will increase while the mortgage won’t so we would be better over a longer time period as well.)

• Insurance increase - 5% yearly

• Maintenance allowance - 8.33% of yearly revenue
• Maintenance cost increase - 5% yearly
• Usage of maintenance allowance yearly - 25% (This is for standard maintenance, not replacing an AC or roof. Big costs would be pulled from the Building account. Basically, if we set aside $1000 yearly, we’re going to actually use $250 in maintenance and put $750 in in the Building account.)

• Real Estate Cost (what I buy today's house for next year) - 5% yearly

This is a lot of info so if you read this far, thanks!

I know no plan is perfect and there are peaks and valleys but I feel like this provides a fairly conservative picture of what it will take and where we will end up in 10-15-20 years…