Rule of Thumb Expense Ratio: SFR vs. 4'Plex (#askBP)

2 Replies

Hi,

I have owned a triplex insince 2009 and am looking to buy some SFR as buy and hold. My average expense for the five years have been 46% and just like @Brandon Turner I was impressed by how close the this was close to the 50% rule of thumb. Do I need to adjust this rule of thumb for SFRs given that:

1. Typical SFR tenants are more long term and have lower turnover.

2. Typical SFR have lower maintenance costs.

3. Typically SFR landlord doesn't have to pay gardening, water, sewer and trash. These line items amount to ~10% of the rents collected in my case.

I would love to hear about this topic from folks who own Multi-Families and and SFRs. This is also a submission for #askBP

Thanks

Originally posted by @ANuraag M. :

Hi,

I have owned a triplex insince 2009 and am looking to buy some SFR as buy and hold. My average expense for the five years have been 46% and just like @Brandon Turner I was impressed by how close the this was close to the 50% rule of thumb. Do I need to adjust this rule of thumb for SFRs given that:

1. Typical SFR tenants are more long term and have lower turnover.

2. Typical SFR have lower maintenance costs.

3. Typically SFR landlord doesn't have to pay gardening, water, sewer and trash. These line items amount to ~10% of the rents collected in my case.

I would love to hear about this topic from folks who own Multi-Families and and SFRs. This is also a submission for #askBP

Thanks

 Answer:

The 50% is a good approximation even for single family homes but it depends on the area.

I would say for "A" and "B" areas  - the vacancy factor I put is 5% not 10% given these areas are more desirable. Also, generally, although not true all the time, the maintenance and repair costs of these properties in better areas are also lower due to higher quality of tenants and lower turnover. So I also factor in 5% for maintenance and repairs. However, A and B areas have higher property taxes too - so in the end,their expense ratio approaches 40-45%.

Thanks Wendell for the response.

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