Big Money Tip for DIYs
Bloomberg has a good graphic on Blackstone's (world's largest private equity firm) model for acquiring a yield in real estate. I have added a couple of notes to the graphic (in yellow) as a reminder to the DIY crowd working on building their real estate portfolios that the expense side includes the labour cost of management as well as a 10% vacancy allowance.
If I have done the math correctly, that puts the expense side of the income statement including vacancy allowance (but excluding debt service) at around 58% of gross rents.
In my May 2013 Case Study of buying a downtown Vancouver condo for a rental return; I have in the last most conservative scenario used a 5% vacancy and 5% management fee for a estimated expense excluding debt service of 39% of gross rents.
I'm willing to bet that Blackstone knows more about the real world than me so my advice to DIY real estate investors is to err on the high side when calculating your expense projections.
My last most recent comments on the current wave of big money buying up bank foreclosures are spanish-inquisition and us-housing-recovery-limited.
SCREEN TIP: If you want to view the image enlargement of the thumbnail above even bigger than the default and you are using Google Chrome as your browser, right click on the image enlargement and select "open image in a new tab" and then Ctrl + to enlarge the image even more.
History, Charts & Curated Readings
"Progress, far from consisting in change, depends on retentiveness. When change is absolute there remains no being to improve and no direction is set for possible improvement; and when experience is not retained, as among savages, infancy is perpetual. Those who cannot remember the past are condemned to repeat it." George Santayana Vol. I, Reason in Common Sense
"History, real solemn history, I cannot be interested in.... I read it a little as a duty; but it tells me nothing that does not either vex or weary me. The quarrels of popes and kings, with wars and pestilences in every page; the men all so good for nothing, and hardly any women at all - it is very tiresome." Jane Austen spoken by Catherine Morland in 'Northanger Abbey'